January 02, 2018

The stock market is up. Equity in homes is increasing. GDP is on the rise. The unemployment rate is low. What is there to complain about? Surface appearances can be deceptive. Only the rich are invested in the stock market. Most people cannot afford to buy a home since house prices are so expensive. The financialization of the economy means that those who have to work for a living outside the FIRE sector are barely, if at all, making it. There have been no wage increases in years. The rich are doing better than ever, and that's why economic indicators show a great economy.

Inequality is increasing. the economy is developing into a noble/serf economy. The rich are getting richer. The middle class and poor are staying about the same. They are becoming a class that serves the rich. The Guardian reported:

The world’s 500 richest people have increased their wealth by $1trillion so far this year due to a huge increase in the value of global stock markets, which are likely to finish 2017 at record highs.

The big increase in the fortunes of the ultra-wealthy comes as billions of poorer people across the world have seen their wealth standstill or decline. The gap between the very rich and everyone else has widened to the biggest it has been in a century and advisers to the super-rich are warning them of a “strike back” from the squeezed majority.

While the rich increase their wealth, the poor live paycheck to paycheck with no wealth to speak of. In fact most have negative wealth which means they are in debt. Payday loan and Moneytree offices are springing up all over the place to cater to those who can't quite make it till pay day. Wealth is something most of the lower middle class and poor have no conception of. They work for a living at increasingly low paying jobs.

The country’s three richest individuals—Bill Gates, Warren Buffett and Jeff Bezos—collectively hold more wealth than the bottom 50% of the domestic population, a total of 160 million people or 63 million American households. Roughly a fifth of Americans “have zero or negative net worth,” the authors wrote.

People are borrowing money to stay afloat. Now auto title loans are becoming more popular. Since a large number of people are leading precarious financial lives on the edge of the abyss, it's no wonder that many are falling into the abyss of homelessness. At that point they're in a black financial hole from which it's very hard to escape.

"This is the second year in a row that the average 1% household has taken over $2.5 million of our national wealth," Buchheit writes. (Photo: Sean Davis/Flickr/cc)

Inequality, like a malignant tumor, is growing out of control, and the only response from Congress is to make it even worse. Those at the richest end of the nation seem to have lost all capacity for understanding the meaning and values of an interdependent society. They've convinced themselves that they deserve their passively accumulated windfalls, and that poorer people have only themselves to blame for their own misfortunes.

It's Getting Uglier Every Year

The average 1% household made nearly $2.6 million in the 12 months to mid-2017. Mostly from the stock market. Here's how:

----The U.S. increased its wealth by over $8.5 trillion (see Table 2-4, mid-2016 to mid-2017).

----Each of 1.26 million households, on average, took nearly $2.6 million. In greater detail, the poor segment of the 1% averaged about $1.44 million for the year, the .1% averaged about $7.2 million, and the .01% (12,600 households) averaged nearly $65 million in just the past year.

This is the second year in a row that the average 1% household has taken over $2.5 million of our national wealth. The pattern has worsened every year since the recession, as the U.S. stock market has more than TRIPLED in value, with about 90 percent of the $18 trillion dollar gain going to the richest 10% of Americans. Despite all this, the super-rich are essentially blackmailing Congress into approving a 1%-pleasing tax bill by threatening to withhold their political payoffs.

Americans Dying, Congress Does Nothing

According to the Centers for Disease Control, there were over 60,000 drug overdose deaths last year, and according to the National Institutes of Health there are about 88,000 Americans dying each year from alcohol-related causes. The number of teenagers hospitalized for suicidal tendencies has doubled in the past ten years.

And yet Congress is considering a tax bill that would eventually cause many middle- and low-income American families to PAY MORE in income taxes.

The children of low-income Americans would be hit hardest. The Republican plan excludes 10 million children whose parents work for low wages -- that's about 1 in 7 of all U.S. children in working families. To turn the screws a little more, rich families would benefit more than the poor. According to one source, "a family making $1 million would get 44 times more money from the government than a single mother earning the minimum wage."

"A century ago, a similar anti-inequality upsurge took on America's vastly unequal distribution of income and wealth and, over the course of little more than a generation, fashioned a much more equal America," write Chuck Collins and Josh Hoxie. (Image: Institute for Policy Studies)

In the United States, the 400 richest individuals own as much wealth as the bottom 64 percent of the population and the three richest individuals own as much wealth as the bottom 50 percent, while pervasive poverty means one in five households have zero or negative net worth.

"All combined, households in the bottom one percent have a combined negative net worth of $196 billion." —Billionaire Bonanza

Those are just several of the striking findings of Billionaire Bonanza 2017, a new report (pdf) published Wednesday by the Institute for Policy Studies (IPS) that explores in detail the speed with which the U.S. is becoming "a hereditary aristocracy of wealth and power."

"Over recent decades, an incredibly disproportionate share of America's income and wealth gains has flowed to the top of our economic spectrum. At the tip of that top sit the nation's richest 400 individuals, a group that Forbes magazine has been tracking annually since 1982," write IPS's Chuck Collins and Josh Hoxie, the report's authors. "Americans at the other end of our economic spectrum, meanwhile, watch their wages stagnate and savings dwindle."

Collins and Hoxie are quick to note that the vast gulf that currently exists between the rich and everyone else is not the product of some inexplicable "natural phenomenon." It is, rather, the result of "unfair economic policies that benefit those at the top at the expense of those at the bottom."

Based on data recently made public by the Forbes 400 list and the Federal Reserve's annual "Survey of Consumer Finances," Billionaire Bonanza examines in detail the principal beneficiaries of America's "deeply unbalanced economy": the mega-rich.

"The wealthiest 25 individuals in the United States today own $1 trillion in combined assets," the report notes. "These 25, a group equivalent to the active roster of a major league baseball team, hold more wealth than the bottom 56 percent of the U.S. population combined, 178 million people."

The top 25 list features billionaires who have attained their vast riches through a variety of means, from inheritance to investing to founding a corporate giant like Amazon or Google. What unites these enormously wealthy individuals—aside from the fact that they are all white—is that they just keep getting richer, decade after decade.

Average Americans, by contrast, have not fared nearly as well: a significant percentage of the U.S. households "have no savings at all or owe more than they own," making them residents of what Collins and Hoxie term "Underwater Nation."

"Excluding the value of the family car, 19 percent of U.S. households have zero or negative net worth," the report notes. "Looking at this trend through the lens of race reveals that 30 percent of black households and 27 percent of Latino households have zero or negative wealth."

In order to get a broader sense of the size of the chasm between rich and poor in the U.S., Collins and Hoxie place the net worth of the top one percent and the bottom one percent side by side.

"The wealthiest 25 individuals in the United States today hold more wealth than the bottom 56 percent of the U.S. population combined, 178 million people.""All combined, households in the bottom one percent have a combined negative net worth of $196 billion," the report finds. "For comparison, the top one percent, a category holding the exact same number of people, have positive $33.4 trillion in combined net worth."

Even mainstream institutions like the International Monetary Fund have acknowledged that such vast disparities of wealth and income are not sustainable, politically or economically. But as Billionaire Bonanza notes, the Trump administration—with the help of the GOP-controlled Congress—appears bent on making these disparities worse by slashing taxes for the wealthy while gutting programs that primarily benefit low-income and middle class Americans.

So the first priority, Collins and Hoxie note, is to "reject tax and other federal policies that will add oil to the inequality fire."

In terms of going on the offensive once the "do no harm" principle is observed, the report makes several suggestions, including:

As "the elite ranks of our billionaire class continue to pull apart from the rest of us," the report notes, many Americans—including students saddled with loan debt, workers suffering from stagnant wages, and families who have seen "their wealth and savings evaporate"—are revolting against the system that allowed the richest to accumulate such wealth at the expense of so many.

"A century ago, a similar anti-inequality upsurge took on America's vastly unequal distribution of income and wealth and, over the course of little more than a generation, fashioned a much more equal America," Collins and Hoxie conclude. "We can do the same."

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October 02, 2017

Screwy Capitalism: When a Hedge Fund Runs a Profitable Company into Bankruptcy

by John Lawrence

Hedge funds are leveraged buyout artists. They borrow huge sums of money in order to buy up all the outstanding stock of some company. Then they make that company, not the hedge fund, responsible for repaying the debt. In many cases they can't do it and so go bankrupt. Meanwhile, the hedge fund managers have paid themselves handsomely out of the borrowed money which again is money owed to Wall Street banks by the company not the hedge fund managers. Another name for hedge funds is private equity funds. The game is the same. Borrow in such a way that the borrowers are not responsible for the debt. This is not what capitalism is all about, but is what it's morphed into.

Instead of investors taking risk, the useful work of private equity, they make risk for others, what John MacIntosh called its malevolent doppelganger. After stripping the company of any asset that can be stuffed into the pockets of the hedge fund or private equity managers, the risk associated with the weakened company is largely borne by its employees, suppliers and customers who get little (if anything) in return.

This is exactly what happened to Toys R Us recently. The Toys "R" Us debacle began in 2005 when private equity firms bought the company for $7.5 billion. Over the last 12 years, this original "take private" deal has probably sucked more than $5 billion out of the company: $470 million in "advisory" fees and interest to the private equity firms and $4.8 billion ($400 million per year for 12 years) in interest on the acquisition debt plus the tens of millions of dollars in legal fees Toys "R" Us will spend in bankruptcy. (It's ironic that the investors who bankrupted the company won't be paying any of these fees.) Yet despite a tough retail environment, Toys "R" Us actually made $460 million from selling toys in 2016 but that didn't help much since all of it -- 100% -- went to pay interest on the debt.

The media portrays the Toys R Us bankruptcy as the plight of brick and mortar stores being handed their lunch by online retailers such as Amazon. Nothing could be further from the truth. The bankruptcy had to do with a transfer of money from the 99% such as the employees and suppliers to the 1%, the bankers, lawyers and financiers. Since all the interest paid was tax deductable, taxpayers also got screwed.

The extreme perversity of this situation is that the borrowers of money are not on the hook to pay it back. If you borrow money to buy a car or a house, you are on the hook. Not so when the borrowed money is used to buy a company. The limited liability corporate structure developed in the mid-19th century as a "corporate veil" to encourage investors to put money into companies is what allows investors to take money out without being on the hook. This law can and should be changed so that hedge and private equity funds cannot bankrupt companies, load them with debt, screw the employees, make them take less in wages, destroy their unions and raid the pension funds. A country that allows this to happen is intent on increasing the economic divide between rich and poor.

These leveraged buyout artists are nothing but parasites preying on and destroying companies for their own profits. They do nothing constructive in the process!

A sane economic system would not let this happen. You can have a system which encourages entrepreneurship and economic growth without the perverse economic ramifications of American capitalism.

September 21, 2017

A worker in a costume representing world capitalism during a 2017 May Day rally in Jakarta, Indonesia. (Dita Alangkara / AP)

The neoliberal, arch-capitalist era we inhabit is chock-full of statistics and stories that ought to send chills down the spines of any caring, morally sentient human. Nearly three-fourths (71 percent) of the world’s population is poor, living on $10 a day or less, and 11 percent (767 million people, including 385 million children) live in what the World Bank calls “extreme poverty” (less than a $1.90 a day). Meanwhile, Oxfam reliably reports that, surreal as it sounds, the world’s eight richest people possess among themselves as much wealth as the poorest half of the entire human race.

The United States, self-described homeland and headquarters of freedom and democracy, is no exception to the harshly unequal global reality. Six of the world’s eight most absurdly rich people are U.S. citizens: Bill Gates (whose net worth of $426 billion equals the wealth of 3.6 billion people), Warren Buffett (Berkshire Hathaway), Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), Larry Ellison (Oracle) and Michael Bloomberg (former mayor of New York City). As Bernie Sanders said repeatedly on the campaign trail in 2016, the top 10th of the upper 1 percent in the U.S. has nearly as much wealth as the nation’s bottom 90 percent. Seven heirs of the Walton family’s Walmart fortune have among them a net worth equal to that of the nation’s poorest 40 percent. Half the U.S. population is poor or near-poor, and half lacks any savings.

Just over a fifth of the nation’s children, including more than a third of black and Native American children, live below the federal government’s notoriously inadequate poverty level, while parasitic financiers and other capitalist overlords enjoy unimaginable hyper-opulence. One in seven U.S. citizens relies on food banks in “the world’s richest country.” Many of them are in families with full-time wage-earners—a reflection of the fact that wages have stagnated even as U.S. labor productivity consistently has risen for more than four decades.

Failure by Design

These savage inequalities reflect government policy on behalf of “the 1 percent” (better, perhaps, to say “the 0.1 percent”). U.S. economic growth since the late 1970s has been unequally distributed, thanks to regressive policy choices that have served the rich and powerful at the expense of ordinary working people. As Joshua Bivens of the Economic Policy Institute showed in his important 2011 study, “Failure by Design,” the following interrelated, bipartisan and not-so-public policies across the long neoliberal era have brought us to a level of inequality that rivals the Gilded Age of the late 19th-century robber barons era. These policies include:

● Letting the value of the minimum wage be eroded by inflation.● Slashing labor standards for overtime, safety and health.● Tilting the laws governing union organizing and collective bargaining strongly in favor of employers.● Weakening the social safety net.● Privatizing public services.● Accelerating the integration of the U.S. economy with the world economy without adequately protecting workers from global competition.● Shredding government oversight of international trade, currency, investment and lending.● Deregulating the financial sector and financial markets.● Valuing low inflation over full employment and abandoning the latter as a worthy goal of fiscal and economic policy.

These policies increased poverty and suppressed wages at the bottom and concentrated wealth at the top. They culminated in the 2007-09 Great Recession, sparked by the bursting of a housing bubble that resulted from the deregulation of the financial sector and the reliance of millions of Americans on artificially inflated real estate values and soaring household debt to compensate for poor earnings.

From the lips of Paul Ryan, Chief Spokesman of Blame-the-Poor politics, came a curious mea culpa just last week: He should not have referred to hard-working Americans trying to feed their families as “takers.” Oops! (Mitt Romney gained attention for similar remarks in 2012, but his running mate Ryan had already been on the makers/takers theme for years.) Ryan further admitted that when it comes to economic distress, he didn’t really know what he was talking about.

“There was a time when I would talk about a difference between ‘makers’ and ‘takers’ in our country, referring to people who accepted government benefits,” said the speaker. “But as I spent more time listening, and really learning the root causes of poverty, I realized I was wrong.”

Well, yes. But a question: If the takers aren’t standing in the unemployment line or rushing home from the second job to change diapers, just where are they? Because an awful lot of America’s resources have gone missing. Like money that should be going to education, job training, healing the sick, retirement funds, infrastructure and, you know—life.

Responding to the CareerBuilder report on Twitter, Randi Weingarten, president of the American Federation of Teachers, argued the results show the urgent need for "strong unions" and "an economy that works for us," not merely the wealthiest. (Photo: Steve Rhodes/Flickr/cc)

Top CEOs may be thriving, but most American workers are drowning in debt, saving little, and living paycheck to paycheck.

78 percent of American workers are living paycheck to paycheck, up from 75 percent last year;

71 percent of workers are in debt, up from 68 percent last year;

56 percent believe their debt is unmanageable;

54 percent of minimum-wage workers say they have to work more than one job to make ends meet.

The report's findings—based on a survey of more than 3,400 full-time workers across various industries and income levels—suggest that the stock market boom President Donald Trump has so frequently flaunted has done little to help the workers he claims to support.

As Michelle Styczynski pointed out in an analysis for the People Policy Project, "the stock market tells us about the prospects of capital owners, but it certainly doesn't tell us much about the average worker."

David Hildebrand, a democratic socialist challenging Dianne Feinstein (D-Calif.) for her Senate seat in 2018, observed that the numbers found in the CareerBuilder survey are "nothing new," and that they show "it's time to redistribute wealth."

As Common Dreamsreported last month, wages for most workers have remained flat for decades. Meanwhile, CEO compensation continues to soar: a recent analysis by the Economic Policy Institute (EPI) found that the pay of top CEOs rose by an "outrageous" 937 percent between 1978 and 2016.

Judging by his tax proposals—and by his claim during his presidential campaign that wages are "too high"—Trump appears unlikely to reverse these decades-long trends.

Responding to the CareerBuilder report on Twitter, Randi Weingarten, president of the American Federation of Teachers, argued the results show the urgent need for "strong unions" and "an economy that works for us," not merely the wealthiest.

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"Curbing advertising, taxing carbon, a basic income, and a shorter work week" can be part of a strategy of "planned de-growth." (Photo: Generation Grundeinkommen/flickr/cc)

As some tech giants throw their weight behind the idea of a universal basic income, one anthropologist says it's a key component of a strategy to break the "addiction to economic growth [that] is killing us" and the planet.

Offering his views this week on BBC's "Viewsnight," Jason Hickel, an anthropologist at the London School of Economics and author of books including The Divide: A Brief Guide to Global Inequality and its Solutions, says "we can't have infinite growth on a finite planet."

That argument—which others have made as well—should be clear by evidence of the "climate change, deforestation, and rapid rates of extinction" taking hold, he says.

The primary blame, according to Hickel, rests with "over-consumption in rich countries," and addressing that entails "planned de-growth," which will put the reins on "our plunder of the earth."

Hickel stresses that he's not referring to austerity, as the goal of "de-growth" is to "increase human well-being and happiness while reducing our economic footprint."

A blueprint to achieve that goal, he says, includes "curbing advertising, taxing carbon, a basic income, and a shorter work week."

"We need an economic model that promotes human flourishing in harmony with the planet on which we depend," he says.

The idea of a universal basic income is gaining attention in the U.S. thanks to a recent resolution put forth in Hawaii, and Philip Alston, U.N. Special Rapporteur on extreme poverty and human rights, said earlier this summer that a basic income is "a bold and imaginative solution" amidst growing economic insecurity.

Laura Williams of the U.K.-based advocacy group Global Justice Now recently asked, "Has the time for universal basic income come?"

According to Hickel, it may be more necessary than ever given the era of President Donald Trump. Hickel wrote in an-op ed at the Guardian this year that

a basic income might defeat the scarcity mindset that has seeped so deep into our culture, freeing us from the imperatives of competition and allowing us to be more open and generous people. If extended universally, across borders, it might help instill a sense of solidarity—that we're all in this together, and all have an equal right to the planet. It might ease the anxieties that gave us Brexit and Trump, and take the wind out of the fascist tendencies rising elsewhere in nativism that is spreading across much of the world.

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Inequality is much worse than we're led to believe by a dismissive business media. The numbers are hellish, and they're growing.

"Inequality is not a problem for the people who own stocks and real estate. For everyone else it's becoming more and more of a living hell."1. The Extreme Wealth Gap is Still Expanding

The U.S. has gained $30 trillion in wealth since 2008, about half of it in the stock market, much of the remainder in real estate holdings. Based on prioranalyses, data from Credit Suisse and Forbes, and recent work by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, it's a rather simple process to estimate the distribution of our nation's wealth over that time period. The following are conservative estimates, since the numbers amount to about $15 trillion, the minimum amount by which financial wealth has increased since the low point of the recession.

July 30, 2017

A new study finds that believing society is fair can lead disadvantaged adolescents to act out and engage in risky behavior.

Brighton Park is a predominantly Latino community on the southwest side of Chicago. It’s a neighborhood threatened by poverty, gang violence, ICE raids, and isolation—in a city where income, race, and zip code can determine access to jobs, schools, healthy food, and essential services. It is against this backdrop that the Chicago teacher Xian Franzinger Barrett arrived at the neighborhood’s elementary school in 2014.

Recognizing the vast economic and racial inequalities his students faced, he chose what some might consider a radical approach for his writing and social-studies classes, weaving in concepts such as racism, classism, oppression, and prejudice. Barrett said it was vital to reject the oft-perpetuated narrative that society is fair and equal to address students’ questions and concerns about their current conditions. And Brighton Elementary’s seventh- and eighth-graders quickly put the lessons to work—confronting the school board over inequitable funding, fighting to install a playground, and creating a classroom library focused on black and Latino authors.

“Students who are told that things are fair implode pretty quickly in middle school as self-doubt hits them,” he said, “and they begin to blame themselves for problems they can’t control.”

Barrett’s personal observation is validated by a newly published study in the peer-reviewed journal Child Development that finds traditionally marginalized youth who grew up believing in the American ideal that hard work and perseverance naturally lead to success show a decline in self-esteem and an increase in risky behaviors during their middle-school years. The research is considered the first evidence linking preteens’ emotional and behavioral outcomes to their belief in meritocracy, the widely held assertion that individual merit is always rewarded.

July 29, 2016

The educational system promotes "progress" in western terms that produces gadgets and labor saving devices while employing smaller and smaller numbers of highly educated people to do so. Those people who have a high capacity to love or care for others are devalued as lesser human beings if they do not have high IQs and advanced degrees from prestigious institutions. They aren't promoted in terms of the educational system. There is no PhD in love. The Meritocracy is seen as deserving billions of dollars. Highly educated professionals attain the highest reaches of government from which they declaim on the virtues of people like themselves.

When I was a graduate student at UCSD, my adviser, Irwin Jacobs, founder of Qualcomm and local billionaire, advised me that at the end of my second year there enrolled in a PhD program, there would be a "filtering out procedure." Jacobs, the ultimate Meritocrat, thought nothing about the disruption of lives that would be caused by having them filtered out. Some of these people had sacrificed to come there leaving good jobs; some of them had families to support. I felt somewhat responsible because I had persuaded some of them to enroll in that program. But Jacobs had no qualms about filtering them out if they didn't meet his high standards and didn't deserve to be in the ranks of the 'best and the brightest'.

My point was why did they admit them into the program in the first place if they didn't think they were good enough to be designated PhDs? They certainly had enough stats on them by that time. They all had been graded and quantified for years in their journey through the educational system and had undergone every possible testing procedure. Answer: they needed bodies in the program to justify their professors' salaries and their very existence. But what they should have done is to have filtered them out right at the beginning before they had lost their jobs and their families instead of leading them on like lambs to slaughter.

Meritocracy Produces Divorces and Job Losses

In the wake of the "filtering out procedure" there were many divorces and job losses. That didn't matter to a Meritocrat like Jacobs. What mattered was that they were not good enough to join the club that he was in. Jacobs, a prominent Democrat and philanthropist, exemplified the Democratic Leadership Council (DLC) values which along with the Clintons and President Obama sought to align itself with the values of the Meritocracy and leave the unions behind. The union movement has been "filtered out" as globalization and President Clinton's NAFTA have come to pass. These are the values of the New Democrats, the post-industrialists, and the DLC. They have rejected the New Deal and the value of equality as passe in favor of globalization and Meritocracy.

The Meritocrat's solution to every problem is more education, that every problem is an individual and not a societal problem. The individual only has himself or herself to blame. This phenomenon is what Thomas Frank writes about in his book, Listen Liberal. To Dr Jacobs' credit, he has used his money to do a lot of good for citizens of San Diego and elsewhere, just as Bill Gates, Warren Buffet and others have. We have replaced New Deal type government programs with billionaire philanthropists.

Another attribute of the Meritocracy is workaholism. Dr Jacobs was a notorious workaholic with little time for his family. After selling Linkabit, he said, "I assured my wife that we’d have lots of time to do things - that every Wednesday, at the very least, we would go out and have lunch together, etc. But there were so many things to catch up on, and so many people that wanted to talk, that I ended up probably being as busy during retirement than I was before."

That is another thing that the Cintonites share with Wall Street. Many of the young well educated crowd goes to work on Wall Street only to find out that the 16 hour days they have to work there aren't worth the millions they're making. Most Meritocrats, however, feel that, since they work so damn hard, they deserve their well-earned money. They also don't have a problem insisting that their workers also work long hours without additional compensation, something that is antithetical to the union movement. That's another reason unions are considered by them to be passe.

The bad side [of Jeff Bezos] is the way he and his company treat employees. In 2011, the Allentown, Pa., Morning Call published an eye-opening series documenting how Amazon treated the workers at its warehouses. The newspaper reported that workers “were pushed harder and harder to work faster and faster until they were terminated, they quit or they got injured.”

The most shocking revelation was that the warehouses lacked air-conditioning, and that during heat waves, the company “arranged to have paramedics parked in ambulances outside” to revive workers who were overcome by the heat. “I never felt treated like a piece of crap in any other warehouse but this one,” said one worker. (After the exposé, Amazon installed air-conditioning in its warehouses.)

Last weekend, a lengthy front-page story in The New York Times examined how Amazon treats its Seattle-based white-collar employees. Although they have air-conditioning — and make good money, including stock options — the white-collar workers also appear to be pushed harder and harder to work faster and faster.

In the cutthroat culture described by The Times’s Jodi Kantor and David Streitfeld, a certain percentage of workers are culled [Ed. note: culled = filtering out] every year. It’s an enormously adversarial place. Employees who face difficult life moments, such as dealing with a serious illness, are offered not empathy and time off but rebukes that they are not focused enough on work. A normal workweek is 80 to 85 hours, in an unrelenting pressure-cooker atmosphere.

Meritocrats think nothing of pushing their workers "harder and harder to work faster and faster", college educated or not. They should share their CEO's Meritocratic workaholism. If not, they're out of there. These are the opposite values of the union movement where limits of total hours worked, and time off for sick leave and vacation leave are put in place. Bezos wants Amazon to have the feel of a start-up where the work pace is frantic and the pressure intense. But the article goes on to question: "The real issue Amazon’s work culture raises — for blue- and white-collar employees alike — is: How disposable are people?"

Contrasting Amazon's work culture with the union movement the article states:

A previous generation of Americans could count on a social compact; if you stuck loyally by a company, it would stick by you, providing you with a good job and a decent retirement. Long ago, loyalty fell by the wayside, and longtime employees learned that their loyalty meant nothing when companies “downsized.”

Amazon — and, to be sure, any number of other companies as well — has taken this idea to its logical extreme: Bring people in, shape them in the Amazon style of confrontation and workaholism, and cast them aside when they have outlived their usefulness.

All this in the name of competition in the globalized work place. Is it worth it to throw away human beings in order to invent another gadget? To grow the economy? To create more billionaires?

Thomas Frank writes, "It was the educational pedigree of the then-forming Team Obama that won [New York Times columnist David Brooks] esteem. ... Brooks had been obsessed with the tastes and habits of the East Coast meritocracy ...." They were the 'best and the brightest'. They got where they were because they were smart, not because they inherited an earldom or something. They were much to be admired. They achieved the American Dream, the Dream of having more money, material stuff and awards than their parents. They were corporate liberals who admired and promoted other smart people like the smart people who got us into the Iraq War in the Bush administration. They represented "credentialed expertise".

Frank continues: "What this doctrine means for the politics of income inequality should be clear: a profound complacency. For successful professionals, Meritocracy is a beautifully self-serving doctrine, entitling them to all manner of rewards and status, because they are smarter than other people. For people on the receiving end of inequality--for those who have just lost their home, for example, or who are having trouble surviving on the minimum wage, the implications of inequality are equally unambiguous. To them this ideology says: forget it. You have no one to blame for your problems but yourself." Get more education!

Caregivers Not Considered to Have Much Economic Value

Those who have the capacity to love, to care, on the other hand, are not deemed to have much economic value. They represent the lowest rung on the socio-economic ladder. They don't gain access to the most esteemed academic institutions. Nobody is giving them a billion dollar IPO, instant wealth for creating a gadget or an app. Their advocacy is not appreciated. Their love for children and caregiving for elders is not seen as economically worthwhile or viable. Their big hearts are given short shrift compared to the people with big brains. They are even ridiculed for having too little brain power, for not succeeding in school.

Yet smart people have been in power and the world is not better off. There is more war, more unrest, less shared wealth, more homeless, more refugees (65 million at last count), more violence, more dissatisfaction, more drug use, more environmental destruction. Smart people have not solved any major problems except the invention of more gadgets because their approach for the most part is to invent a salable item, something which can be commodified, bought and sold. Certainly the environment was in much better shape 100 years ago, the water cleaner, the air purer, the food totally organic (pesticides and herbicides had not been invented yet).

In short, we can say today that man is far too clever to be able to survive without love. No one is really working for peace unless he is working primarily for the restoration of love. The assertion that "foul is useful and fair is not" is the antithesis of love. The hope that the pursuit of goodness and virtue can be postponed until we have attained universal prosperity and that by the single-minded pursuit of wealth, without bothering our heads about spiritual and moral questions, we could establish peace on earth, is an unrealistic, unscientific, and irrational hope. The exclusion of love from economics, science, and technology was something we could perhaps get away with for a little while, as long as we were relatively unsuccessful; but now that we have become very successful, the problem of spiritual and moral truth moves into the central position.

I have altered Schumacher's quote slightly replacing his word, "wisdom", with my word "love." But surely we need both more wisdom and more love if planet earth and the life upon it is to survive.

To summarize we don't need more high tech gadgets; we need technology on a human scale, intermediate technology, to prevent planet Earth from becoming a Planet of Slums as Mike Davis points out. Progress as conceived in the West, which is fueled by greed and envy, only creates more poverty and ecological devastation. We don't need more high IQ technologists from prestigious educational institutions. We need people who have a high capacity for loving and caring even though they may not have high IQs. Can this society discover them or is it only dedicated to the greedy and cold hearted technologists who can invent new gadgets and get billion dollar IPOs from investors who have money to burn, the upper 1%? That money only seeks greater financial returns, not a better world or a more peaceful planet. As Hal David said in 1965, "What the world needs now is love, sweet love. That's the only thing that there's just too little of."

January 28, 2016

Oil is less than $30. a barrel. This is over three times less than what it costs just to buy the barrel itself! Iran has been accepted back into the world community and is revving up to sell its oil on the world market which will bring down the price of oil even more. Frackers and oil producers in the US have taken on a huge amount of debt under the assumption that it would pay off down the road. They hadn't counted on the price of oil plummeting. What will they do when we convert 100% to renewables?

The debt overhang in the US economy is, as The Donald would say, UUUUGE! All the Wall Street banks and hedge funds, which have bet on the US becoming oil independent and have bought derivatives up the ying yang, are on the losing end of their bets. This presages a crash similar to the mortgage based crash of 2008. Then the Big Banks will ask for another bailout. Or maybe they won't ask; they'll just tell us that we're bailing them out because, after all, they run the government.

Goldman Runs the Government While Committing Fraud

Goldman Sachs runs the government's finance department. Treasury Secretaries Robert Rubin (1995-99) and Hank Paulson (2006-2009) were at Goldman from 1966 to 1992 and 1974 to 2006 respectively. At Treasury, Paulson was aided by Chief of Staff Mark Patterson (Goldman lobbyist 2003-2008), Neel Kashkari (Goldman Vice President 2002-2006) , Under-Secretary Robert K Steel (Vice Chairman at Goldman, where he worked from 1976 to 2004), and advisors Kendrick Wilson (at Goldman from 1998 to 2008) and Edward C Forst (former Global Head of Goldman's Investment Management Division).

Paulson's successor, Timothy Geithner, a protege of Robert Rubin, was kept close to the Goldman fold with the usual tactic of paying him lucrative speaking fees, the same tactic they use to keep Hillary's ear. I could go on with Goldman's connections to the US government, but I don't want to bore you. For a fuller account I refer you to Michael Hudson's book, Killing the Host, How Financial Parasites and Debt Destroy the Global Economy.

This January 2016 Goldman admitted to committing massive fraud and was fined $5 billion. The Wall Street firm had agreed with federal prosecutors and regulators to resolve claims stemming from the marketing and selling of faulty mortgage securities to investors. These are the people who are running your democratic (ha, ha) government. While the 99% got screwed, Wall Street got bailed out because they ARE the government.

But not to worry. This looming market crash is a problem for the big guys, the billionaires, the investor class, not the 99%. The mortgage defaults of 2008, on the other hand, brought real pain to the middle class. While the banks got bailed out, the average middle class homeowner did not. HAMP, the Home Affordable Mortgage Program which was supposed to help homeowners stay in their homes with loan modifications, was a colossal failure.

The program gave permanent mortgage modifications to 1.3 million people, but 350,000 of them defaulted again on their mortgages and were evicted from their homes. Fewer than one million homeowners remain in the HAMP program – just a quarter of its target – and $28 billion of the funding remains unspent. The HAMP program, supposed to help homeowners save their houses, may have led them deeper into a bureaucratic swamp.

401ks - the Worst Idea Perpetrated on the American People

Now that that crisis has settled down, the main worry of the middle class is that, when the stock market tanks, so will their 401k. 401ks were one of the worst travesties visited on the average American worker. Folks lucky enough to have traditional pensions don't have to worry especially if it's a government pension. On the other hand those with traditional pensions from corporations have to worry about corporate raiders and hedge fund takeover artists raiding their pension funds. Those with 401ks are taking all the risk in their individual portfolios over which they have no control really. They are at the mercy of the market and Wall Street. God help them.

There is also widening inequality which means that American consumers have less money to spend to keep the economy going. US GDP depends on consumer purchases because they are 70% of the economy. If everyone goes to ground and starts growing their own vegetables and keeping their own chickens, all those nonpurchases at the supermarket will drive the economy down. 2015 was a big year for car sales; that means that 2016 will not be because consumers are carred up.

Consider: The median wage is 4 percent below what it was in 2000, adjusted for inflation. The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children – and less demand for goods and services.

At the same time, the labor participation rate—the percentage of Americans of working age who have jobs—remains near a 40-year low.

The giant boomer generation won’t and can’t take up the slack. Boomers haven’t saved nearly enough for retirement, so they’re being forced to cut back expenditures.

Wall Street and hedge funds are running the economy. They are the central planners not the US government which is basically just a pawn in their hands. They borrow money from the Federal Reserve at extremely low rates and then buy Treasury bonds which amounts to making money off the spread or making money off their ability to finance the American government which boils down to us, the American taxpayers.

Fortunately, the US isn't dependent on Japanese or Chinese or Saudi Arabian investors to buy its bonds. Wall Street has taken over that role in a symbiotic Ponzi scheme which requires the Fed, Wall Street and the US Treasury to all play their parts. That means that now the Big Banks are really, really Too Big To Fail. They are an essential part of funding and running the US government!

Better to Put Your Money Under the Mattress

While Wall Street banks are too big to fail, the next banking crisis could trigger not a bail out but a bail in. According to Ellen Brown, the mechanics are already in place to loot depositors' bank accounts:

While the mainstream media focus on ISIS extremists, a threat that has gone virtually unreported is that your life savings could be wiped out in a massive derivatives collapse. Bank bail-ins have begun in Europe, and the infrastructure is in place in the US. Poverty also kills.

At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”

Something to think about. Maybe hiding your money under the mattress is the best solution since it's not earning any interest in the bank anyway.

“The United States is more vulnerable today than ever before including during the Great Depression and the Civil War,” says Thom Hartmann, in “The Crash of 2016.” Why? “Because the pillars of democracy that once supported a booming middle class have been corrupted, and without them, America teeters on the verge of the next Great Crash.” Thanks to an obstructionist GOP, hell-bent on destroying Obama the past six years. [Thom's] indictment hits hard, but matching something you might hear from Rush Limbaugh on the Right.

“The United States is in the midst of an economic implosion that could make the Great Depression look like child’s play,” warns Hartmann. His analysis is brutal, sees that “the facade of our once-great United States will soon disintegrate to reveal the rotting core where corporate and billionaire power and greed have replaced democratic infrastructure and governance. Our once-enlightened political and economic systems have been manipulated to ensure the success of only a fraction of the population at the expense of the rest of us.” And he wrote that before Picketty’s “Capital in the 21st Century.”

The US has a boom bust economy. Unfortunately, the busts are becoming more frequent and the booms more superficial. People get all euphoric when the stock market goes up. As someone once said, it leads to "irrational exuberance." Then when it crashes, they sell leaving their 401ks and retirement incomes in shambles. That's what happens when investing is left in the hands of amateurs. The big guys, the hedge funds will make money either way - when the stock market goes up they go long; when it goes down they're short. They are high frequency traders and act on insider information. They commit fraud.

They have billions of dollars at their disposal from low interest loans from Wall Street. That's why they can buy entire corporations, break them up, lay off the employees, raid their pension funds and sell the remaining eviscerated hulk off to the unsuspecting and naive. The hedge (vulture) funds and Wall Street make out like bandits which is what they essentially are. The banks, whose function used to be capital formation to fund industry which created jobs, now functions as a conduit to hedge funds to wreak havoc with the American economy in pursuit of short term profits.

The world is polarized between the uber wealthy and the rest of us. Just 62 people own as much wealth as the 3.6 billion poorest. That's globalization for you. Nation states are no longer important or in control. The uber wealthy, the billionaires, who can buy and sell politicians and governments at their whim are the controllers. They - not the communists or socialists - are the central planners of the economy, and their plan for the economy is to benefit them and only them. The World Bank and the IMF are their henchmen.

The gap between rich and poor is reaching new extremes. The richest 1 percent have now accumulated more wealth than the rest of the world put together… Meanwhile, the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years.”

The wealth of the richest 62 people has risen by 44 percent in the five years since 2010—that’s an increase of more than half a trillion dollars ($542 billion), to $1.76 trillion,” Oxfam noted. “Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period—a drop of 41 percent. Since the turn of the century, the poorest half of the world’s population has received just 1 percent of the total increase in global wealth, while half of that increase has gone to the top 1 percent.

There is really only one candidate for President who is addressing these issues - Bernie Sanders. Republicans want us to take our eyes off the ball of growing inequality and impoverishment of the 99% while the billionaires take on the role of oligarchs. They want us to focus on international terrorism and the threat that that brings to our everyday lives.

While that is surely a threat, ISIS cannot do major damage to the US. A few people can be blown up here and there and that is a tragedy. It's just not as great a tragedy as the gun violence done by Americans to other Americans on a daily basis which is orders of magnitude bigger.

If the economy takes a tumble, Hillary Clinton's ties to Wall Street will take on an even more ominous cloud over her campaign while the fact that Bernie Sanders has raised millions in small donations without the help of Wall Street or Super PACs will cast him in an even more favorable light. That might be the deciding factor. The Republicans will surely be left behind if they place all their bets on getting the American people to vote for them out of fear of ISIS.

December 08, 2015

Income and wealth inequality is only getting worse. It's not hard to understand why. Certain corporations have a lock on economic activity throughout the world. Mom and Pop operations have been forced out of business or have merged with the Big Guys. Artificial intelligence, automation, robots and computers have taken over many menial but used-to-be-better-than-minimum-wage jobs like check-out clerks, bank tellers and customer service operators. Other jobs have been off shored to cheaper labor jurisdictions.

The rest of us, college graduates included, have been reduced to being expendable appendages of the large corporate machines to be sucked in and spit out at their pleasure. When our skill sets are outmoded, we will be laid off and fresh talent will be acquired. The job pool is shrinking because the number of necessary jobs is shrinking. Today, there are approximately 1.2 million fewer jobs in mid-and higher-wage industries than there were prior to the 2008 recession, while there are 2.3 million more jobs in lower-wage industries. According to the Bureau of Labor Statistics most jobs in the next decade won't even require a college education. They are jobs that can't be done by robots: care givers, nurses, house cleaners, gardeners, retail.

Another reason for income and wealth inequality is that the US Federal Reserve's quantitative easing policy screws savers who get zero interest on their life savings while injecting money into the largest Wall Street banks. This money is siphoned off by wealthy investors and hedge funds. It never enters the real economy. It only encourages the average Joes and Janes to take on more debt. Ninty percent of the money supply is created by private banks who loan money into the economy through their policy of fractional reserve banking. As the money supply increases, so does debt.

Wall Street Banking Giants Create Most of the US Money Supply

Fractional reserve banking is a simple concept that has become more complicated and convoluted as it has evolved over the years. In its simplest terms, if a bank takes in a deposit of $100 from 10 people or $1000 total, it loans out $900 of that keeping $100 back as a reserve in case someone wants their deposit back before the principal and interest on the loans start flowing in. Their premise is that not everyone will demand their deposit back at the same time. If, however, everyone does want their money back at the same time, there could be a run on the bank unless the bank can borrow the money from some other entity like another bank or the Federal Reserve

Thus money is created by the bank with a few keystrokes on a computer and is fed into the economy as debt. The banks are at the top of the food chain since they create the money and loan it out on interest. Thus the US economy is a debt based economy. Bad things happen when people all demand their money back at the same time or collective debt becomes so big and untenable that it can't be paid back. This is what happened in the 2008 financial crisis when mortgages were given to people who couldn't pay them back and hence defaulted. Eventually this whole financial structure, which was a house built upon sand instead of a rock, to use a Biblical metaphor, collapsed.

It is to be noted that when a bank creates money, it is not backed by gold. Nixon took us off the gold standard in 1971. Money not based on anything but the government's say so is called fiat money. Thus all money created by private banks is fiat money, and, although the government says it is all good, it is the private banks that actually create it, not the supposedly democratically elected government.

The Federal Reserve has also been involved in money creation recently with a process called quantitative easing (QE). When the government needs money beyond the revenues it takes in by means of taxes, it goes into debt by issuing bonds. Sometimes those bonds are bought by Joe and Jane Average Investor or sometimes by other countries like Japan. However, much of the time they are bought by Wall Street banks. Then the Federal Reserve turns around and pays cash for those bonds taking them off the hands of the big banks. The result is that the banks end up with more money and the loans disappear on the Federal Reserve's balance sheet which is sort of like a black hole. Effectively, the government never has to pay those loans back.

Quantitative Easing for the People

There is another way that money could be created and injected into the economy. It might be called quantitative easing for the people (PQE) as Britain's Leader of the Labor Party, Jeremy Corbyn has termed it. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.

The money creation (or printing if you like) would entail the government issuing a bond that a National Investment Bank would buy. Then the central bank would take that loan on its balance sheet in return for cash that the bank would then use to pay for infrastructure. The end result is that the government would owe the central bank the amount of the loan, but because the central bank is a financial black hole, it would never have to pay.

In Addition to Pocketing the QE, Wall Street Bankrupts Cities

The City of Los Angeles is paying a Wall Street bank $200. million annually in fees just to manage its money. The Huffington Post revealed:

LOS ANGELES, CA- At a lively downtown rally in front of the Bank of NY Mellon in Los Angeles, the Fix LA Coalition unveiled a groundbreaking research report, entitled "No Small Fees: LA Spends More on Wall Street than Our Streets," revealing that Wall Street charges the City of Los Angeles more than $200 million in fees. Coalition members called for action to reduce the high fees and put that money back into neighborhood services. After the rally, Fix LA Coalition members delivered the report to elected officials in City Hall.

In addition LA like a lot of cities that have gone bankrupt (Birmingham, Alabama for instance) has been snookered into interest rate swaps that end up costing much more money than if they had kept the original loan at the original rate. Then to get out of these toxic deals, they have to pay a substantial "termination fee."

Lisa Cody, SEIU 721 Research Analyst and report co-author stated: "Based on what we know, there are some concrete steps we can take to save LA millions. For example, we can start with Mellon Bank to renegotiate a 'swap' deal that was supposed to save the city money, but is instead costing LA almost $5 million a year. To fix this toxic deal, the bank wants $24 million more in fees. In 2012, NY Mellon charged the city $26 million in termination fees for another swap they had sold us that turned out to be a terrible deal for LA."

LA is not the first and probably won't be the last to be tricked into engaging in a fancy derivative deal that was way over the heads of the city employees that were talked into it by Wall Street hit men. If they had formed their own Public Bank of Los Angeles, they could not only have avoided being ripped off, but they could have actually made money and then be in a position to fix all those potholes they've been screaming about. And they could have created their own money supply the way Wall Street does it: fractional reserve banking.

Los Angeles Becomes Largest U.S. City to Take Action on Toxic Bank Deals; Unanimous Vote Requires City to Renegotiate or Terminate Multi-Million Dollar Interest Rate Rip-Off on Behalf of Taxpayers

Unanimous City Council vote sends strong message to Bank of NY Mellon, Wall Street: LA is not your ATM

The Los Angeles City Council voted 14-0 Wednesday to renegotiate or terminate without penalty a toxic swap deal the City entered into with two Wall Street banks, Bank of New York Mellon and Dexia. The measure, advanced by Fix LA, a coalition of clergy, unions and community groups aligned to restore city services and expand middle class jobs in the public sector, could save the City as much as $138 million. The International Business Times, noting the significance, reported that Los Angeles is now the largest city in the nation "to challenge ballooning Wall Street levies that accompany similar interest rate swap deals throughout the nation."

The motion further calls on the banks to return unfair profits and fees paid since 2008, estimated at more than $65 million to date. The deal costs taxpayers $4.9 million annually.

Los Angeles is now spending $290 million a year in financial fees or more than the entire city budget for maintaining its vast array of streets and highways. LA isn't the only sucker to enter into an interest rate swap in 2007 which was essentially a bet that interest rates would not fall below 2%. Then when the Federal Reserve, with its policy of QE, lowered interest rates to zero, LA and many other jurisdictions found themselves on the wrong end of a bet and were forced to shell out much more than they would have if they had kept the interest rate on the original loan.

The next sucker: Puerto Rico. Puerto Rico ran itself into debt and then tried to make up for it with interest rate swaps. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2012 and 2014, Puerto Rico paid nearly $640 billion to terminate swaps in addition to $12 million annual swap payments. As a result Puerto Rico is in the same situation as Greece - borrowing money in order to make debt payments which is the same as borrowing money on one credit card to make the payments on another.

The Chicago Public School Teachers' Pension and Retirement Fund has brought suit against 10 of Wall Street's biggest banks including Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for colluding to prevent the trading of interest rate swaps with the result that it cost the Fund more money.

If these jurisdictions - whether they be cities, counties or states - formed public banks as the state of North Dakota did, there would be no outflow of cash to Wall Street. Money would stay at the local level and could be used to support local businesses and create jobs repairing and building infrastructure.

An Infrastructure Bank Would Mean Good Jobs in a Much Needed Enterprise

If the government creates money and puts it in an infrastructure bank, that money would be spent into the economy by creating jobs to build and repair infrastructure. Thus good jobs would be created at the low and middle parts of the economic spectrum. This money would have a multiplier effect as the job holders would spend their paychecks on the necessities and luxuries of life. American GDP is based on 70% consumer spending so that would go up. Thus the democratically elected government - not private banks - would be in charge of creating the money supply and it would be to the advantage of average workers not high end financiers. Since the big banks are the current recipients of the QE largesse, that money goes into the pockets of billionaires in various ways and drives wealth and income inequality.

Or the government, instead of the private Wall Street banks, could create money itself directly and inject it into the economy in a variety of ways as Abraham Lincoln did when he had the American government create and spend greenbacks into the economy. This money, therefore, does not create debt as money created by private banks and loaned into the economy does. It's a bottom up rather than a trickle down method. Problem is that most money created today does not trickle down into the real economy.

Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.

Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:

It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme. . . .

It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.

So the government could just create money and inject it into the economy in one of two ways: directly to the people in the form of a basic guaranteed income or through an infrastructure bank that creates jobs. In the first instance money would be transferred directly to people to bolster consumption. In the second case jobs would be created that would get needed work done. Or a combination of both could be used.

A third way of reducing income inequality would be to redistribute money from the 1% to the 99% through the tax code. This is the method that Bernie Sanders advocates. Taxes on wealth and financial transactions would provide additional monies which could be transferred to the 99% through social programs such as Medicare-For-All, or it could be given directly in terms of a deposit to checking accounts as was done in the Economic Stimulus Act of 2008. Money was deducted from tax liabilities or deposited directly to American citizens.

The Concept of a Basic Guaranteed Annual Income

The concept of a Basic Income in the U.S. goes back to Thomas Paine, one of the driving forces for independence and reducing inequality during the American Revolution. More recently, it’s been supported by very non-liberal individuals like Fredrick Hayek, Milton Friedman, and Richard Nixon. This would eliminate poverty in one fell swoop. All the anti-poverty programs could be rolled into one with much fewer administrative costs. Just as Medicare-For-All would simplify and reduce medical costs, a basic guaranteed income would amount to Social-Security-For-All. The state of Alaska already has such a program called the Alaska Permanent Fund which hands out money to each resident on an annual basis. In 2015 each man, woman and child received $2,072.00. For a family of four that was a nice basic income of approximately $8000. Sweet!

In the Netherlands a number of cities are experimenting with a basic income after the city of Utrecht announced that it would give no-strings-attached money to some of its residents. Tilburg, a city of 200,000 inhabitants close to the border with Belgium, will follow Utrecht’s initiative, and the cities of Groningen, Maastricht, Gouda, Enschede, Nijmegen and Wageningen are also considering it. A recent study conducted in 18 European countries concluded that generous welfare benefits make people likely to want to work more, not less.

In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. Other countries such as Finland and Catalonia are also moving in the direction of a no-strings-attached guaranteed income. This would do more to reduce inequality and poverty than perhaps any other measure.

If Tilburg’s basic income project gets the green light from Netherland’s state secretary of social affairs, the town will provide an extra paycheck to a pilot group of 250 people starting in January 2016, Tillburg officials said. The city has not confirmed the amount of the stipend, but in Utrecht checks will range from around €900 ($1,000) for one adult to €1,300 ($1,450).

Although the classic basic income theory proposes universal payments across the population, the two Dutch experiments will only focus on residents who are already recipients of social assistance. Those in the program will be exempt from the severe job-seeking requirements and penalties in Dutch law.

Authorities aim to test how citizens react without that sword of Damocles over their heads. Will the money encourage them to find a job or will they sit on their couches comfortably?

A guaranteed income could be means tested. Why not? Rich people don't need an extra $1000. a month. It would reduce poverty, increase consumption and bolster GDP. Rich corporations would probably increase the price of staples as people had more money to buy them causing inflation. That's why the behemoth world wide franchise operations need to be broken up so they don't collude to raise prices on staples thus defeating the purpose of the basic income. With fiat money entering the real economy instead of the billionaire economy, inflation could become a concern.

Hyperinflation is always a concern when fiat money is created. When that money is spent by consumers, it will still wind up in the hands of a few major corporations, and that would be a problem. They could just keep raising prices. That's why breaking up those large behemoths by using the Sherman Anti-Trust Act is important. Money can also be pulled back by the government by taxation if inflation threatens to get out of hand.

As Ellen Brown says: "Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply."

However, when fiat money ends up in the pockets of billionaires as has been the case with QE, inflation is not a concern because it doesn't enter the real economy and prices don't rise. Income inequality though becomes a major concern as does the influence of big money on the political system. Billionaire money has bought and paid for the political system through lobbying and campaign donations with the result that the US is effectively no longer a democracy but a plutocracy.

What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion. ...

One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence.

With inequality increasing some way or ways must be found to redress the balance. The alternative is to wake up and find ourselves in a neo-feudal society controlled by a few behemoth corporations employing only a few high level people at good wages. The rest of the population would be employed in low level service type jobs and live in relative poverty. What money they had would be spent in the troughs of the giant corporations and end up in the pockets of the 1%. Even if the 99% were given money to spend, it would still end up there - in the pockets of a few. An infrastructure bank funded by government created fiat money would provide people with decent jobs in which workers could maintain a sense of dignity and improve the quality of the nation's infrastructure at the same time.

In addition recipients of a basic income should have to give something back in terms of creating a better life for poor people around the world. Instead of armies with guns and weapons which have cost trillions and produced mainly negative results, a Peace Army could help poor people around the globe attain at least a minimally acceptable lifestyle in terms of clean water and sanitation, adequate nutrition, energy and education.

Installing solar around the world will not only provide energy for people who don't have anything but the most primitive kind while cleaning up the environment at the same time. The commitment of rich nations to help poorer nations convert to renewable energy could be manifested by funding unemployed and underemployed Americans to help build such infrastructure around the world.

It's not good for people to be idle. If they have no other job, they should at least be required to perform community service. If they have another job so that the basic income is just a supplement, this would be the ideal situation.

Income inequality will only increase as long as Wall Street banks control the money creation process, and the rest of US citizens keep going into debt whether it be with mortgages, student loans, car loans or credit cards. Local jurisdictions should take back the money creation process from Wall Street by creating their own public banks. Then the people will have the say in who gets the QE.

September 28, 2015

The Pope is visiting the US this week to make the case that we should take climate change seriously and start doing something about it. He is really making the case that we should change our paradigm from one of individual self-fulfillment to one of "we're all in this together," from individual salvation to collective salvation of our earthly home. This has far reaching implications. We need to be concerned about what's happening to the earth as a whole, to humanity as a whole, and not just to our own family, town, state, country.

The Pope doesn't mince words. Far from being the conservative head of a 2000 year old bureaucracy, he is using his moral megaphone and authority to speak out on the major problems of our day - global warming and capitalism - and the two are interrelated. You can't have the entire sum of people on the planet involved with saving the planet from runaway climate change without getting involved with the collective plight of all those people in their daily lives. The Pope is putting the emphasis and focus on the plight of the poor, which is really what Jesus was all about.Finally.

How many look at the refugee crisis and compare it to Jesus' parable about the Good Samaritan? The phrase "Good Samaritan" means someone who helps a stranger, whether he or she be an "illegal immigrant," a refugee or whatever. We are all in this together; we are all human beings. We put the plight of the poor, the defenseless, the destitute before the worship of money. Capitalism turns that ethic around. Wall Street and its minions worship money.

Is Capitalism the Dung of the Devil? The Pope Says So

The Pope, himself, has labeled capitalism the "dung of the devil" since doing things naturally the capitalist way results in exploitation of the environment with a consequent worsening of the climate change situation. That's how profits are made. So the Pope is calling on us to stop being capitalists, to stop exploiting the environment for personal, selfish gain. The Pope blames "unbridled capitalism" for ruining the earth and immiserating the poor. Jim Wallis, founder of Sojourners said, "How we decide the morality, the integrity, the righteousness of an economy is not how the wealthiest do but how the poorest do." That is even more radical than communism or socialism.

The Pope has written, "Whatever is fragile, like the environment, is defenseless before the interests of a deified market, a market that does not take into account the fundamental rights of the poor and underprivileged." The capitalist economy is for the "best and the brightest," the entrepreneurs, the college graduates, those who start with nothing and make a billion dollars.

And devil take the hindermost, meaning those who aren't the best and the brightest, but the Pope, as did Jesus before him, speaks for them, those who are left behind by capitalism: the homeless, the mentally ill, those who cannot cope, those who aren't the sharpest blades in the drawer, in other words - the hindermost. Capitalism promotes the ethic of valuing the richest and the smartest, who are perfectly capable of fending for themselves. Is it any wonder that there is runaway wealth creation at the top of the social spectrum? A good thing? I don't think so.

Right wing pundits want us to admire and emulate the rich. They want us to be in favor of policies that promote the rich. We too can be rich some day if only we are willing to work hard. We can all aspire to be Donald Trump and fly around in a helicopter with our name emblazoned on the side. The Pope takes the opposite tack. We should be in favor of policies that help the poor and middle: the 99%.

... the Pope’s words are very important because he wields enormous moral authority. Would that the leading moral authorities from the world’s other major religions had the gumption to stand up and add their voices in the fight against climate change.

The Pope blames human greed for exploitation of the environment and an economic system that is geared to profit making rather than to rational development of natural resources which would benefit all mankind rather than just those at the top. The Pope’s 184 page encyclical is a radical statement: a condemnation of business as usual and a call for a restructuring our political and economic priorities.

To Save the Planet We Must Leave Fossil Fuels in the Ground

To be absolutely clear, we need to leave fossil fuels in the ground and convert to renewables as quickly as possible, not in a leisurely fashion. But this mindset obviously has not sunk in yet as corporations and countries seek to exploit the latest opportunity which has been provided by climate change itself: drilling for oil in the Arctic region at the top of the world. Global warming has proceeded twice as fast there as anywhere else with the result that the ice cap is melting, the Northwest passage is opening and drilling opportunities are presenting themselves. In addition shipping companies are lusting after the opportunity to shave miles off of shipping routes. Has anyone stopped to think about what an Exxon Valdez magnitude oil spill would mean in that pristine environment?

Whole communities in the Arctic are going to have to leave their traditional way of life and move elsewhere or be wiped out. The town of Kivalina, Alaska may cease to exist because the sea ice is melting making it too dangerous to hunt the whales which are their traditional source of food. In addition waves now wash across their town because there is no barrier protecting them any more. "Global warming has caused us so much problems," said Joseph Swan, Sr., a Kivalina elder. "The ice does not freeze like it used to. It used to be like 10 to 8 feet thick, way out in the ocean."

Meanwhile, corporations and countries are forging ahead to exploit Arctic resources seemingly totally oblivious to the need to leave the fossil fuels and the profits in the ground. The planet still holds vast reserves of fossil fuel that could be extracted economically. However, according to a new analysis, a third of the world’s oil, half of its gas, and 80 percent of its coal reserves, worth trillions of dollars, must remain unused if we are to have a good chance of avoiding potentially devastating climate change.

That means that a whole lot of people are going to have to squelch their primal urge to get rich and realize the capitalist and American dream of creating wealth for themselves. Leaving the exploitable profits behind is the anti-capitalist mindset that needs to be adopted if humanity is to survive. The lust for profit has characterized capitalist mentalities from time immemorial. Just one example: the "conquering" of the New World in the Age of Exploration in the 16th century. The explorers were after gold and other resources, and they didn't hesitate to kill indigenous people to get them.

How Do We Change the Capitalist Mentality When That is Essentially the American Dream?

So how to change that mentality and get people to cooperate and distribute the earth's resources more equitably, instead of seeking to gain selfishly, in order to save the planet and humanity as a whole? Will the US government's "slow as you go" reductions, which seek to reduce carbon emissions from US power plants, targeting a 32 percent drop from 2005 levels by 2030, be sufficient? Will the "cap and trade" approach which lets corporations continue to pollute if they pay other corporations for "credits" work? Will selfish capitalistic appeals to selfish interests work?

Naomi Klein doesn't think so. The author of This Changes Everything: Capitalism vs the Climate, and one of the Pope's advisers, despite being a secular feminist, thinks that we have to change our selfish, capitalistic mentality if the earth is to remain habitable for human beings. Pope Francis agrees. The Dalai Lama agrees. Who doesn't agree? Capitalists and Republicans who want to maintain the "traditional way of American life." We should all aspire to get as rich as Donald Trump. You see America is based on capitalistic exploitation. It's traditional. If you changed that, America wouldn't be America any more.

So what do we need in order for Americans to listen and take this thing seriously? An American Pope? Someone in the position of authority to say we need to cooperate to save the West from burning up and consuming more and more financial resources just to fight fires? How much money will go to recover from Hurricanes like Katrina and Sandy? Do we need to convert the trillion dollars spent annually on the military-industrial complex to fighting fires?

This is money that needs to go to the prevention of these climate disasters in the first place which means money that needs to go to converting to renewables post haste not by 2030 or 2050. At the rate that climate disasters and extreme weather are manifesting themselves, major disasters requiring major amounts of money will be happening by 2030. Climate change refugees will be migrating from all over the world. The current European refugee crisis is just a harbinger of things to come. Wars will be fought over resources.

Who's going to pay for fighting wildfires - private corporations? The fossil fuel industry? I don't think so. All of us pay through taxes. Would you rather pay taxes to fight fires and house refugees or would you rather pay taxes to convert to renewables and leave fossil fuels in the ground? Of course there's another way to generate the money to convert to renewables at a faster rate.

It's the way Abraham Lincoln used to fight the Civil War, build the transcontinental railroad and construct the land grant colleges. He printed greenbacks, the 19th century version of quantitative easingthat bypassed Wall Street and benefited all of America not just the rich. Today the government could just print the money with a few keystrokes on a computer, and, instead of giving it to Wall Street banks as it has done with its quantitative easing policy, it could just use it to create jobs converting to renewable energy at a faster rate. All dollars are fiat money meaning they aren't backed by gold or anything else. It's just that the current US policy of printing fiat money gives that money to the rich. It could just as well print fiat money and give it to the poor and middle instead: quantitative easing for the 99% instead of for the 1%.

Greenbacks could be printed again and used to put people to work converting our power plants to renewable solar on a massive scale. Subsidies could be given to get fossil fuel burning cars off the road and get people into electric vehicles in the same way that Obama initiated the "cash for clunkers" program. Well now, every gas burning internal combustion engine is a clunker that needs to come off the road. The government could make this happen if people were subsidized to the necessary extent. Electric vehicle production plants would be humming putting people back to work making good wages.

We could live in a country powered entirely by renewable energy, woven together by accessible public transit, in which the opportunities of this transition are designed to eliminate racial and gender inequality. Caring for one another and caring for the planet could be the economy’s fastest growing sectors. Many more people could have higher wage jobs with fewer work hours, leaving us ample time to enjoy our loved ones and flourish in our communities.

Sound good? Bernie Sanders is calling for much the same thing. Of course this whole Ronald Reagan, Horatio Alger, rags-to-riches American dream of starting with nothing and becoming a billionaire will have to be seen for the sham that it is. None of these high tech billionaires, not Elon Musk, not Richard Branson, not Bill Gates, not Irwin Jacobs are going to come up with a technological solution that is magically going to "fix" the environment while keeping capitalism in place. Capitalism was never benign. And technology can be part of the solution, but it can't solve the inhumane basis of capitalism because it is part and parcel of it.

And what Bernie is talking about: if medicare-for-all, free community college, a financial transaction tax, raising taxes on the rich to where they were under the Republican Eisenhauer administration, if these measures are socialism, then count me in.

Francisco Pizarro conquered Peru in order to steal its gold from the Incan empire. He captured the Incan chief, Atahuelpa, and demanded a ranson of a roomful of gold. After taking the gold he killed Atahuelpa anyway. This is the legacy of capitalism. Regarding money more than human lives. The veritable worship of money for money's sake. This is the Wall Street mentality. Who cares about the earth? Sissies that's who. Real men are conquistadors. They conquer. All is fair in love and war. I guess that means that rape is fair because that happens in love and war.

Last year, 2014, was the hottest on earth since record-keeping began in 1880 underscoring warnings about the risks of runaway greenhouse gas emissions and undermining claims by climate change contrarians that global warming had somehow stopped.

Extreme heat blanketed Alaska and much of the western United States last year. Records were set across large areas of every inhabited continent. And the ocean surface was unusually warm virtually everywhere except near Antarctica providing the energy that fueled damaging Pacific storms.

But don't look over here. Keep you eyes on the antics of Donald Trump who wants to build a wall along the Mexican border. Note to Trump: with regard to immigration, you haven't seen anything yet. You could follow Hungary and build a wall, but what is the world going to do with all the refugees otherwise known as illegal immigrants - put them in concentration camps? Climate change refugees are already on the move. This is only the beginning. All the capitalists and billionaires in the world cannot solve this problem within the constraints of capitalism and American fundamentalism.

Some hopeful signs: in July 2015 anti-fossil fuel protests swept Vermont and Maine. The actions, along with others across the United States and Canada, were staged in remembrance of the Lac-Mégantic rail disaster on July 6, 2013, when a 74-car freight train carrying crude oil derailed and exploded in Lac-Mégantic, Quebec, killing 47 people and destroying much of the town. "Fossil fuels are harmful and violent to communities along every point of production, from extraction to combustion," said Meaghan LaSala, a member of SEEDs for Justice in Maine. "We’re here to say that we’re not going to let the oil be transported by train along Lake Champlain any longer."

I will close with a quote from my collaborator, Frank Thomas, whose erudition on this subject is nonpareil:

"The risks to Mother Earth are simply too great to gamble on a "life as usual" acceptance of a potentially massive ecological and human extermination event – especially knowing the speed and scale of the CO2 and CH4 pollution trend line we are now on. Placing all bets and blame on cycles and natural variability for the obvious human disproportionate disturbance of nature’s environmental balance on the only planet known to harbor human life … is a bet we should all pass on for the sake of our children’s children and their children’s children."

Just before the President spoke, Nike announced that if the Trans Pacific Partnership is enacted, Nike would “accelerate development of new advanced manufacturing methods and a domestic supply chain to support U.S. based manufacturing,” thereby creating as many as 10,000 more American jobs.

But that would still be only a tiny fraction of Nike’s global workforce. While Nike makes some shoe components in the United States, it hasn’t assembled shoes here since 1984.

In other words, Nike is a global corporation with no particular loyalty or connection to the United States. Its loyalty is to its global shareholders.

I’m not faulting Nike. Nike is only playing by the rules.

I’m faulting the rules.

In case you hadn’t noticed, America has a huge and growing problem of inequality. Most Americans are earning no more than the typical American earned thirty years ago, adjusted for inflation – even though the U.S. economy is almost twice as large as it was then.

Since then, almost all the economic gains have gone to the top.

The President is angry at Democrats who won’t support this trade deal.

He should be angry at Republicans who haven’t supported American workers. Their obduracy has worsened the potential impact of the deal.

Congressional Republicans have refused to raise the minimum wage (whose inflation-adjusted value is now almost 25 percent lower than it was in 1968), expand unemployment benefits, invest in job training, enlarge the Earned Income Tax Credit, improve the nation’s infrastructure, or expand access to public higher education.

They’ve embraced budget austerity that has slowed job and wage growth. And they’ve continued to push “trickle-down” economics – keeping tax rates low for America’s richest, protecting their tax loopholes, and fighting off any attempt to raise taxes on wealthy inheritances to their level before 2000.

Now they – and the President – want a huge trade agreement that protects corporate investors but will lead to even more off-shoring of low-skilled American jobs.

The Trans Pacific Trade Partnership’s investor protections will make it safer for firms to relocate abroad – the Cato Institute describes such protections as “lowering the risk premium” on offshoring – thereby reducing corporate incentives to keep jobs in America and upgrade the skills of Americans.

Those same investor protections will allow global corporations to sue the United States or any other country that raises its health, safety, environmental, or labor standards, for any lost profits due to those standards.

But there’s nothing in the deal to protect the incomes of Americans.

We know that when Americans displaced from manufacturing jobs join the glut of Americans competing for jobs that can’t be replaced by lower-wage workers abroad – personal service jobs in retail, restaurant, hotel, hospital, child care, and elder care – all lower-skilled workers face downward pressure on wages.

Without a higher minimum wage, an expanded Earned Income Tax Credit, affordable higher education, and a world-class system of job retraining – financed by higher taxes on the wealthy winners in the American economy – most Americans will continue to experience stagnant or declining wages.

Instead, the Trans Pacific Partnership – which includes twelve nations, including Vietnam, but would be open for every nation to join – would lock us into an expanded version of the very policies that have failed most American for the past twenty years.

No doubt Nike is supporting the TPP. It would allow Nike to import its Vietnamese and Malaysian-made goods more cheaply. But don’t expect those savings to translate into lower prices for American consumers. As it is, Nike spends less than $10 for every pair of $100-plus shoes it sells in the U.S.

Needless to say, the TPP wouldn’t require Nike to pay its Vietnamese workers more. Nikes’ workers are not paid enough to buy the shoes they make much less buy U.S. exported goods.

Nike may be the perfect example of life under TPP, but that is not a future many Americans would choose.

The richest nation in the world should enable its workers to be good parents. Family-friendly work isn’t a luxury. People who work hard deserve to make more than a decent living. They and their families deserve a decent life.

MAKING THE ECONONY WORK FOR THE MANY, NOT THE FEW. STEP #1: RAISE THE MINIMUM WAGE

A basic moral principle that most Americans agree on is no one who works full time should be in poverty, nor should their family.

Yet over time we’ve seen significant growth in the “working poor” – people working full time, sometimes even 60 or more hours each week, but at such low wages that they remain impoverished.

What to do?

One step is to raise the minimum wage to $15 an hour. This is winnable. A powerful movement is fighting for $15 an hour and they’re winning new laws in cities and states, and forcing companies to raise wages.

If the minimum wage in 1968 had simply kept up with inflation it would be more than $10 today. If it also kept up with the added productivity of American workers since then, it would be more than $21 an hour.

Wrong. Half are 35 or older, and many are key breadwinners for their families.

And don’t believe scaremongers who say a $15 minimum will cause employers to cut employment.

More money in people’s pockets means more demand for goods and services, which means more jobs not fewer jobs.

Studies also show that when the minimum is raised more people are brought into the pool of potential employees, giving employers more choice of whom to hire. This reduces turnover and helps employers save money.

Finally, employers who don’t pay enough to lift their employees out of poverty are indirectly subsidized by the rest of us – who are paying billions each year in food stamps, Medicaid, housing assistance, and welfare, to make up the difference.

The minimum wage should be raised to $15 an hour. It’s the least that a decent society should require.

July 20, 2014

The Fed doesn't actually "print" money in the sense of ink on paper hundred dollar bills. But what it can do is create money with a few keystrokes on a computer. Money so created is called "fiat money" since it's not backed by gold or anything else. The Fed currently prints the money to purchase $40 billion in mortgage backed securities and $45 billion in government bonds each month. The rationale for doing this is that it keeps interest rates low which is thought to be necessary to keep the economy humming. Before the financial crisis of 2008-09, the Fed managed to keep interest rates low by adjusting the interest rate at which banks borrow overnight. But after the financial crisis, the Fed needed a more robust policy which is called Quantitative Easing or QE. This policy is mainly a giveaway to the big Wall Street banks to augment their reserves. The lack of sufficient reserves is thought to have been the problem that caused the financial crisis.

The Fed’s massive QE program was ostensibly designed to lower mortgage interest rates, stimulating the economy. And rates have indeed been lowered – for banks. But the form of QE the Fed has engaged in – creating money on a computer screen and trading it for assets on bank balance sheets – has not delivered money where it needs to go: into the pockets of consumers, who create the demand that drives the real economy. Low interest rates will certainly stimulate the economy in the sense that they will encourage the sale of cars and houses, both of which are usually done by borrowing money at interest. So the Fed's policies are all about generating economic activity by creating more debt for average Americans and this results in bigger profits for Wall Street.

The Fed's QE policy means that the Fed buys government bonds and mortgage backed securities from private investors - mainly the big Wall Street banks - and then credits the accounts of those banks with the cash. In return the Fed takes possession of the bond or security it has just bought which is just added to the Fed's balance sheet. Now if the Fed sells that bond back into the market or redeems it from the government, it would get the cash that it had created back and could just extinguish it by a few more keystrokes on the computer. At that point the money that had previously been created will have been destroyed and would be subtracted from the Fed's balance sheet. So in that long run scenario the Fed would not have "printed" or created any money at all except on a temporaray basis. The rub is that the Fed may never remove that money from its balance sheet. It certainly hasn't done so thus far. The Fed has been buying bonds since early 2009. During that time its balance sheet has increased from $900 billion to over $4 trillion today.

A secondary effect of keeping interest rates low is that it lowers the Federal government's interest payments on its gargantuan Federal debt. That tends to neutralize the issue of government spending and deficits as a political issue. The Fed has also been buying the bonds being sold by the US government to finance its deficit. This is considered a Ponzi scheme by some writers as the Fed buys up government deficits and in effect disappears them making sure that bond redeemers always get paid. Bernie Madoff went to jail for doing the same thing except Bernie could not create money with a few keystrokes on a computer like the Fed can.

The negative side of low interest rates is that it hurts savers. Saving accounts produce hardly any interest so there is not much incentive to save. There is, therefore, an incentive to invest in the stock market which has risen dramatically and basically has become a bubble similar to the rapid increase in home values prior to the Great Recession of 2008. When that bubble burst, home values fell precipitously. The same thing could happen to the stock market if the Fed eases off its policy of QE and interest rates rise. Then the stock market could deflate like a punctured balloon.

So what is the other negative aspect of the Fed's QE policy? All that money the Fed is creating or printing, if you will, is pooling in the financial system mainly among rich investors. It is not going into the real economy or into the average person's pocket. If that money were injected into the real economy, it could be used for rebuilding, repairing and building new infrastructure, for example, which would create jobs. Instead the Fed's idea of creating jobs is to keep interest rates low so that more cars and houses will be built and sold. The jobs created will be mainly for car salesmen and real estate salespersons as well as construction crews and assembly line workers.

Money pooling in the financial system and not entering the real economy has only an indirect effect on economic growth, and has the primary purpose of making rich people, especially bankers, richer. This is thought to be a good thing in that it shores up bank reserves which were drastically depleted due to the casino operations leading up to the Great Recession when the banks collapsed not essentially because they had little in the way of reserves but primarily because they had run up their gambling debts to excessive levels with nothing to back them up.

So what will the Fed do now? It may never be able to reduce its balance sheet by either redeeming government bonds or selling them into the market because that would raise interest rates and drive up the amount the Federal government would have to pay in interest on its debt. At that point paying interest on the debt might take up the entire or almost the entire Federal budget. In addition raising interest rates would put a damper on economic activity in the form of discouraging people from purchasing cars, houses and other consumer items. Since consumption is 70% of GDP, this could lead to a recession. This would again place the big banks in jeopardy because, as economic activity diminishes, interest payments to the banks - a big part of their income - will go down, and this will add to the downward spiral which could produce Great Recession, Part 2.

Therefore, the government bonds and mortgage backed securities that the Fed is taking on its balance sheet via their money printing operations may never be redeemed or sold and may have effectively disappeared into a black hole as the Fed's balance sheet continues to increase. The Fed may be stuck printing money ad infinitum and subsidizing the banks at the expense of the average American in perpetuity. The Wall Street banks, it should be pointed out, make money every time the Fed purchases a government bond or mortgage backed security from them. Since the Fed is prohibited by law from buying government bonds from the government directly, Wall Street banks effectively act as middle men and they do so for a price, a price the Fed gladly pays, and for no risk on the part of the banks.

As the Fed continues to subsidize the big banks with money pooling at the upper end of the income spectrum, inequality increases in American society. The Fed policy of QE is a policy designed to increase inequality as the price to be paid to keep the economy rolling. The price of increased economic activity and rising GDP is the further indebtedness of the American people as they buy cars, houses and other consumer items with borrowed money. The Fed, which is not publicly owned, functions to improve the financial prospects of the Wall Street banks which are its real owners. (They actually own most of the stock in the Federal Reserve.) Is it any wonder then that the Fed's policies primarily serve the interests of its owners - the big Wall Street banks? A truly public central bank, one owned by the people of the US, could have the same function of increasing the money supply as needed, but it might do so by using the fiat money so created to more directly benefit the American people.

Germany tried “abnormal” money printing in the early 1920’s after WW 1 and the result was hyperinflation, collapse of the German economy, and the rise of Hitler. The same might happen in the US if hyperinflation were to start taking place while the Fed is stuck in handing out money to the big banks in order to keep them afloat. To fight hyperinflation the Fed would have to raise interest rates and this might bring the US economy to a grinding halt. The policy of reducing the amount of QE on a monthly basis is called "tapering." This doesn't mean that the Fed is selling off the government bonds or mortgage backed securities on its balance sheet, just buying less of them than they had previously. The Fed will still be adding billions to its balance sheet every month. Inflation is the only thing that will force the Fed to reduce its balance sheet. Otherwise, it could disappear government deficits and bank owned mortgage backed securities into its black hole indefinitely.

If the Fed starts to taper, the big boys at the Big Banks might take this as a signal to short the stock market, and this might cause the stock market bubble to burst as stock values are driven down. The average non sophisticated 401k investor would probably panic and sell on the dip losing the value of his or her retirement savings as the Wall Street guys make a killing. When the market reaches its lowest ebb, the Big Guys will start buying again driving the market back up. After the market rallies sufficiently, the average guy will work up the courage to get back in with his 401k, having lost a ton of money selling on the dip and buying on the rally, just the opposite of what sophisticated investors do. Concomitantly, the Fed will probably reintroduce its policy of QE in order to stabilize the economy, and it might have to admit that this policy will continue indefinitely or even ad infinitum. The denouement is that the rich will have gotten richer while the middle class will have been reduced to penury, just the same tendency as happened after the recession of 2008.

This debt based, Wall Street centric, unstable economy know as US capitalism could be changed by replacing the privately owned Federal Reserve with a publicly owned central bank that created and extinguished fiat money as necessary in order to more directly benefit the American people and in such a way that it serves the needs of the real economy rather than being an effort to stabilize and profit Wall Street banks. Rather than providing jobs indirectly only if more debt for the American people is created, a public central bank could inject money as needed directly into the real economy creating jobs in the process and building wealth for the average American while reducing inequality.

July 10, 2014

As a white guy, this question is still very germane for me since my grandson is an African American male. Or rather he is half African American and half European-American - actually a little less than half African American with a little Native American thrown in. And he has already been placed in a tenuous position at the age of six because next year he will be repeating kindergarten. His parents were not able to afford the level of pre-school instruction that the other members of his kindergarten class evidently received. It's amazing that now they expect kindergarten children to do first or second grade work with spelling tests and homework every day. When I went to kindergarten, the only thing expected of us was that you would learn to tie your shoes.

His case is not so much a case of racism as it is a case of being raised in relative though not extreme poverty. The only reason it wasn't extreme was that there were extended family resources available to them. That isn't always the case for many African American or blended families. Many black children, and in particular black male children, are raised in extreme, unremitting poverty. In many cases a family member is in jail. It could be a father, an uncle, a brother, a cousin. Going to jail is a very common experience for African American families. The root cause is that many of them have had meager job training and very limited employment opportunities. Most are in jail for minor drug offenses. If marijuana were to be legalized, the prisons would empty out.

America has less than 5% of the world's population but about 25% of all prisoners. There are more African American males in jail now than there were working as slaves at the height of slavery. And they are not the only ones punished for minor drug offenses. Their families are punished as well. Their children are denied the opportunity of having a father in the home. Their wives are denied the opportunity of having a breadwinner other than themselves in the family. In 2008 one in a hundred American adults was behind bars.

America, with great armies deployed abroad under a banner of freedom, nevertheless harbors the largest infrastructure for the mass deprivation of liberty on the planet. We imprison nearly as great a fraction of our population to a lifetime in jail (around seventy people for every hundred thousand residents) than Sweden, Denmark, and Norway imprison for any duration whatsoever.

That America’s prisoners are mainly minorities, particularly African Americans, who come from the most disadvantaged corners of our unequal society, cannot be ignored. In 2006, one in nine black men between the ages of twenty and thirty-four was serving time. The role of race in this drama is subtle and important, and the racial breakdown is not incidental: prisons both reflect and exacerbate existing racial and class inequalities.

The so-called "war on drugs" has resulted in large numbers of African American males ending up in prison while a few decades ago marijuana was perfectly legal and alcohol was outlawed. Prohibition of alcohol consumption started in 1920 and ended in 1933. Up until 1933 marijuana consumption was perfectly legal. As soon as they made alcohol legal again, they started Prohibition of marijuana. The arbitrariness of the laws has determined that large segments of the African American population have become outlaws when their grandparents and great grandparents lived during a time when their recreational drug of choice didn't result in breaking the law. At that time marijuana was part of African American culture and remained so to a large extent after it was outlawed.

Now serving time in prison has become part and parcel of the African American experience. As Loury says, "... the ubiquity of the prison experience in some poor urban neighborhoods has had the effect of eliminating the stigma of serving time." In these poor neighborhoods on any given day there are as many as one in five African American males in jail. Children grow up with the knowledge that a family member or someone they know is spending time behind bars. Such is the epidemiology of African American poverty. As in my grandson's case, his having to repeat kindergarten was more a function of his parents' relative poverty which resulted in their not being able to afford preschool for him than it was because of the fact that he is African American.

For everyone incarcerated who had poor employment opportunities before they went to prison, when they get out, their employment opportunities are virtually non existent except for doing illegal activities where employment is readily available. Their environment and their prison contacts determine their employment prospects post prison. The determining fact of their situation is that the culture they live in is one of crime and poverty.

And this suits the interests of the prison-industrial complex just fine. They employ lobbyists to encourage lawmakers to pass even stricter laws criminalizing as many things as possible. Why? the more people serving time, the greater are their profits. And they have been hugely successful! Private prisons have spent millions on lobbying to put more people in jail. From less than 300,000 inmates in 1972, the jail population grew to 2 million by the year 2000. "Three strikes" laws have led to an aging prison population. Many of these prisoners will never see the outside world again, and, if they did, their lives would be entirely dysfunctional as they are completely adapted to prison life and maladapted to living outside of prison.

Private prisons are the biggest business in the prison industry complex. About 18 corporations guard 10,000 prisoners in 27 states. The two largest are Correctional Corporation of America (CCA) and Wackenhut [ed.note: now called GEO Corporation], which together control 75%. Private prisons receive a guaranteed amount of money for each prisoner, independent of what it costs to maintain each one. According to Russell Boraas, a private prison administrator in Virginia, “the secret to low operating costs is having a minimal number of guards for the maximum number of prisoners.” The CCA has an ultra-modern prison in Lawrenceville, Virginia, where five guards on dayshift and two at night watch over 750 prisoners. In these prisons, inmates may get their sentences reduced for “good behavior,” but for any infraction, they get 30 days added – which means more profits for CCA. According to a study of New Mexico prisons, it was found that CCA inmates lost “good behavior time” at a rate eight times higher than those in state prisons.

Finally, we wonder why no bankers went to jail after committing massive fraud and other white collar crimes during the 2008 recession involving billions of dollars while huge numbers of African American males are in prison for possessing microscopic amounts of drugs. Mat Taibbi thinks it's because there are two standards of justice in American society. The poor are criminalized while the rich can do no wrong. It is a society in which "money talks and shit walks." He says in his book, "Divide, American Injustice in the Age of the Wealth Gap":

We're creating a dystopia, where the mania of the state isn't secrecy or censorship but unfairness. Obsessed with success and wealth and despising failure and poverty, our society is systematically dividing the population into winners and losers, using institutions like the courts to speed the process. Winners get rich and get off. Losers go broke and go to jail. It isn't just that some clever crook on Wall Street can steal a billion dollars and never see the inside of a courtroom; It's that plus the fact that some black teenager a few miles away can go to jail just for standing on a street corner, that makes the whole picture complete [or in Trayvon Martin's case walking home with a bag of Skittles].

The great nonprosecutions of Wall Street in the years since 2008 ... were just symbols of this dystopian sorting process to which we'd already begun committing ourselves. The cleaving of the country into two completely different states - one a small archipelago of hyperacquisative untouchables, the other a vast ghetto of expendables with only theoretical rights - has been in the works a long time.

...

And as every individual who's ever been charged with a crime knows, anyone facing criminal arrest can expect collateral consequences. A single drug charge can ruin a person's chances for obtaining a student loan or a government job. It can nix his or her chances of getting housing aid or a whole range of services - even innocent members of your family may lose access to government benefits. You can lose your right to vote and your access to financial aid. You can even have your children taken away.

I'm hoping that my grandson will somehow escape the cultural propensity and milieu that seems to redound to some members of his ethnic group or rather one of his ethnic heritages. After all he didn't grow up in the ghetto; he's a naturally smart and spirited little boy. That doesn't mean he will adapt well to society's norms as exemplified by the school system which tends to penalize people with his set of talents and personality traits regardless of race if they don't conform. The school system has a tendency to dispirit spirited people in an attempt to get them to be docile and compliant. And if they're hyperactive, they want to drug and sedate them with Ritalin in preparation for an adult life dependent on prescription or street drugs.

He has two older sisters that seem to have the talent and intelligence to transcend society's norms regardless of race. One has been in the gifted class since she started school and the other is on the honor role. An even more positive prognosis is that his parents are back togther after a four year interlude and finally pulling themselves out of poverty. However, there are many others that could be constructive members of society if they were only able to obtain a little outside help which, unfortunately, too many do not have access to. As Billie Holiday said,"Papa may have. Mama may have, but God bless the child who's got his own, who's got his own."

It's not just about the distance between rich and poor, but about the gap between what’s demanded by our planet and what’s demanded by our economy.

Thomas Piketty’s “Capital” is an extremely important contribution to the study of economics and inequality over the last few centuries. But because it fails to address the real limits on growth—namely our ecological crisis—it can’t be a roadmap for the next. (Photo: Dai Luo / Flickr)By now, it’s no secret that French economist Thomas Piketty is one of the world’s leading experts on inequality. His exhaustive, improbably popular opus of economic history—the 700-page Capital in the Twenty-First Century—sat atop the New York Times bestseller list for weeks. Some have called it the most important study of inequality in over 50 years.

Piketty is hardly the first scholar to tackle the linkage of capitalism with inequality. What sets him apart is his relentlessly empirical approach to the subject and his access to never before used data—tax and estate records—that elegantly demonstrates the growing trends of income and wealth inequality. The database he has compiled spans 300 years in 20 different countries.

Exactingly empirical and deeply multidisciplinary, Capital is an extremely important contribution to the study of economics and inequality over the last few centuries. But because it fails to address the real limits on growth—namely our ecological crisis—it can’t be a roadmap for the next.

Inequality and Growth

One of the main culprits of inequality, according to Piketty (and Marx before him), is that investing large amounts of capital is more lucrative than investing large amounts of labor. Returns on capital can be thought of as the payments that go to a small fraction of the population—the investor class—simply for having capital.

"At the center of the rapidly growing New Economy Movement are ecological balance, shared prosperity, and real democracy. If we can’t find a way to build all three, then the only economy worth measuring is the number of days we have left."

In essence, the investor class makes money from money, without contributing to the “real economy.” Piketty demonstrates that after adjusting for inflation, the average global rate of return on capital has been steady, at about 5 percent for the last 300 years (with a few exceptions, such as the World War II years).

The rate of economic growth, on the other hand, has shown a different trend. Before the Industrial Revolution, and for most of our human history, economic growth was about 0.1 percent per year. But during and after the rapid industrialization of the global north, growth increased to a then-staggering 1.5 percent in Western Europe and the United States. By the 1950s and 1970s, growth rates began to accelerate in the rest of the world. While the United States hovered just below 2 percent, Africa’s growth rates caught up with America’s, while rates in Europe and Asia reached upwards of 4 percent.

But as Marx observed in the 19th century, economic growth did little to reduce inequality. In fact, as Piketty demonstrates, wealth has grown ever more concentrated in the hands of the few, even as the pie has gotten bigger. Piketty developed a simple formula to illustrate how wealth gets concentrated: when the average rate of return on capital (r) is greater than the rate of economic growth (g)—in mathematical terms, when r > g.

Through the 19th and early 20th centuries, according to Piketty, the rate of return on capital exceeded that of growth, and inequality blossomed in the industrialized world. But in the 1950s, this trend began to shift—not because of redistributive economic policies, but rather as a consequence of historical calamities in the preceding decades. During this time, aggressive social, economic, and tax policies were ushered in by devastation and destruction.

With these policies set in place, the recovery efforts after the Second World War accelerated growth, which for the first time in recent history exceeded the rate of return on capital—that is, g > r—creating a middle-class.

A Mistaken Model

This was the period when economists and policymakers developed a fetish for economic growth, thanks in part to Simon Kuznets, an influential Belarusian-American economist.

Looking at data spanning from 1913 to 1948, Kuznets concluded—mistakenly, according to Piketty—that in the aggregate, economic growth automatically reduces income inequality. Kuznets argued that a rising tide of industrialization would at first create greater inequality as populations were left behind, but once they began to adapt to the new economic conditions, they would eventually gain access to more wealth as they became fully integrated in the new economic model—in essence closing the wealth gap.

It turns out, though, that the rich just keep getting richer.

This misinterpretation helped justify a quest for perpetual economic growth and free markets, paving the way for massive industrialization, accelerated climate change, and widespread environmental destruction, while simultaneously neglecting the very issue Kuznets set out to address: reducing income inequality.

In Capital, Piketty rigorously applies Kuznets’ analysis to a larger dataset and debunks the argument for perpetual growth. Instead, Piketty concludes that industrialization without any enforceable progressive taxation has actually created greater inequality.

Piketty thus forces liberal and conservative economists alike to rethink their models of growth. But if growth isn’t the answer, what is?

The Limits of Growth

Piketty prescribes a few remedies. But he does not take into serious consideration the limits to growth. He is a traditional Keynesian in this regard, which may be his biggest flaw.

His main prescription—a “progressive tax on global capital”—assumes that a 2-5-percent global growth rate is sustainable in the long run and, with a redistribution of capital, will reduce inequality. However, he concedes that a progressive tax on global capital is utopian. So instead, he’ll settle for a “regional or continental tax” as the first step towards a progressive tax on global capital—starting in the European Union.

Piketty’s solutions focus more on taxing egregious levels of wealth concentration than on the systemic conditions that incentivize the desire to accumulate egregious amounts of capital in the first place. He seems to believe that pushing tax rates high enough will deter CEOs from pursuing millionaire salaries, and that this can be done without hindering growth. The first is unlikely, and the second misses the real problem with growth.

Piketty spends about four pages of his 700-page tome talking around the limits to growth, but he fails to adequately address the fact that limitless growth—i.e., consumption—is completely unsustainable on a finite planet. Recent reports from NASA, the Intergovernmental Panel on Climate Change, and the U.S. government’s National Climate Assessment conclude that the planet cannot continue on the same path of economic growth if it is to sustain human life.

What this means is that it doesn’t matter if we implement a progressive tax on capital because our planet will not sustain forever a growth rate of even 1 percent annually. A dead planet will support neither high earners nor tax collectors.

Towards a New Economy

All this leads to a larger conundrum.

On the one hand, we have extreme inequality, where many live on less than $2 a day while others have so much wealth that it would require several lifetimes to spend. On the other hand, we have a climate crisis that has imposed limits to growth, so we can’t grow our way into shared prosperity.

The traditional approach to inequality is to bring down those at the top while raising up those at the bottom. But to what level should we bring people, considering our finite planet?

Do we want everyone to live a mythical American middle-class lifestyle? Where every family of four lives in a two-car-garage home with a TV in every room, and every family member has a smart phone, tablet, and computer? Where they take a vacation to the other side of the globe once a year, and send their children away to a university and buy them a car when they are of age?

Is this the standard of living we want for every person on the planet? Obviously it can’t be—it would require at least five Earths.

Piketty is right that our political economy favors the growth of inequality, and that inequality in turn poisons our politics. But while we should aspire to create a society that shares its prosperity, we need to address a much bigger gap than the one between rich and poor. We need to address the gap between what’s demanded by our planet and what’s demanded by our economy.

At the center of the rapidly growing New Economy Movement are ecological balance, shared prosperity, and real democracy. If we can’t find a way to build all three, then the only economy worth measuring is the number of days we have left.

Thankfully, the New Economy Movement is seriously considering the four-fold systemic crisis—ecological, economic, social, and political—to identify a just transition to the next system. Piketty can show us part of the problem, but he can’t show us how to solve it on his own.

Noel Ortega is the coordinator of the New Economy Working Group (NEWGroup), which is a partnership between YES! Magazine, the Institute for Policy Studies (IPS), the Business Alliance for Local Living Economies (BALLE), and the People-Centered Development Forum (PCDForum).

June 11, 2014

"Capital in the 21st Century" has sent conservatives into a rage. Here's how to debunk their favorite attacks.

Thomas Piketty’s wildly popular new book, “Capital in the 21st Century,”has been subject to more thinkpieces than the final episode of “Breaking Bad.” Progressives are celebrating the book — and its unexpected popularity — as an important turning point in the fight against global wealth inequality. This, of course, means that conservatives have gone completely ballistic.

Rush Limbaugh, for example, has come out guns a-blazing: “Some French socialist, Marxist, communist economist has published a book, and the left in this country is having orgasms over it,” he exclaimed during a recent broadcast.

When the right drops the C-bomb, the M-bomb and S-bomb all at once, you can be certain a book is having an impact. And “Capital” may well be the “General Theory” of the first half of the 21st century, redefining the way we think about capitalism, democracy and equality.

This, of course, means that the right-wing attacks have only just begun. That in mind, here is a handy guide to navigating the more absurd responses:

Claim: Piketty is a dirty Marxist

There are two Marxes. One, a scholar of capitalism of repute, put forward testable hypotheses, some of which you may accept, some of which you may reject. The other is a conservative boogeyman, the human representation of all they find evil. If they dislike something, it must be Marxist.

Thanks to Piketty, the Left is now having a “Galaxy Quest” moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all.

How to respond: Most times someone drops the M-Bomb, he is intending to be provocative. With enough effort, you can make almost anything Marxist. While Marxists don’t agree on everything, and the term is very nebulous (Marx once said he wouldn’t describe himself as a Marxist), there are some pretty established rules for determining if someone is, indeed, a Marxist. First, he generally doesn’t write things like,

“Marxist analysis emphasized the falling rate of profit — a historical prediction that turned out to be quite wrong” (“Capital in the 21st Century,” page 52)

“Marx usually adopted a fairly anecdotal and unsystematic approach”. (“Capital in the 21st Century,” page 229)

“Marx evidently wrote in great political fervor, which at times lead him to issue hasty pronouncements from which it is difficult to escape. That is why economic theory needs to be rooted in historical sources …” (“Capital in the 21st Century,” page 10)

These are not the words of a Marxist, but rather a reasonable scholar, investigating the truth of the claims written by the greatest political economist who ever lived. The fact that Piketty abstains from the vitriol and misrepresentation that typify most writing on Marx are to his credit.

Piketty certainly does argue that capitalism will not inevitably reduce inequality, as economist Simon Kuznets had famously claimed. As to whether capital will accumulate without end, as Marx believed, he is more nuanced.

Piketty argues that capital will accumulate in the hands of the few when growth is slower than the rate of return on capital and dis-accumulate if not (This is the now famous “r>g” formula). As growth slows, companies can replace workers with machines (written by economists as “substitution between capital and labor”), but only if there is a high elasticity of capital to labor (higher elasticity means easier replacement). This means that the share of income going to the owners of capital will rise, and the distribution of that capital will become more unequal.

Piketty does not hold to a labor theory of value, he does not believe that capitalism is founded on the exploitation of the proletariat, and he does not believe the system will inevitably collapse on its own contradictions. But critics who call Piketty a Marxist don’t actually mean, “Piketty subscribes to a collection of propositions generally accepted by Marxists”; they mean it as a verbal grenade. Step over it and move to more substantive criticisms.

Claim: The social safety net has already solved the problem

In order to somewhat compensate workers for voluntary unemployment and the ludicrously low wages that “markets” pay them, modern societies have developed transfer systems, or social safety nets of various levels of robustness, to bolster the incomes of low-wage workers. Some conservatives argue that these transfers have solved the inequality problem.

Scott Winship, the lovable but irksome economist dedicated to upsetting the inequality consensus, writes in Forbes,

Most importantly, in the United States, most public transfer income is omitted from tax returns. That includes not just means-tested programs for poor families and unemployment benefits, but Social Security. Many retirees in the Piketty-Saez data have tiny incomes because their main source of sustenance is rendered invisible in the data.

How to respond: There’s not enough room to give his data claims a full airing. For our purposes, it suffices to say that, while America does have a transfer system, it’s far less robust than that of other developed nations. (See chart below, from Lane Kenworthy.)

Inequality reduction via taxes and via government transfers, 2000-05

Photo Credit:

Lane Kenworthy

Click to enlarge.

Government revenues are far lower in the U.S. than in other countries, making redistribution more difficult, and thus our safety net is far more frail. (See chart below, from Sean McElwee.)

Revenues as a % of GDP

Photo Credit:

Sean McElwee

Click to enlarge.

Far more interesting is what would happen if conservatives made this their line. After all, if transfers are what is preventing inequality from skyrocketing then the rising share of pre-transfer income accruing to the wealthy capital owners means we need more robust transfer system. Because few, if any, thinkers on the right have argued for a stronger transfer system (and are, in fact, attempting to violate it), they must accept the logical conclusion: Their policies will set off skyrocketing inequality (or, more likely: They don’t give a shit).

Claim: Inequality isn’t a problem because look at consumption!

There are lots of ways to look at inequality. You could look at income inequality by examining how much a person takes home every year from their labor, income from assets and transfers. You could also look at wealth inequality by figuring out how many assets they own, in the form of stocks, bonds, property, and subtract from it their debts. Or you could look at how much they are able to consume.

Some conservative economists argue that an increase in income inequality has not been mirrored by an increase in consumption inequality because the wealthy save or invest their income. Kevin Hassett, a former Romney economic adviser, illustrates this point, arguing:

From 2000 to 2010, consumption has climbed 14% for individuals in the bottom fifth of households, 6% for individuals in the middle fifth, and 14.3% for individuals in the top fifth when we account for changes in U.S. population and the size of households. This despite the dire economy at the end of the decade.

Although he initially made this argument against Piketty in 2012, he has revived it recently in a lecture on the subject.

How to respond:In large part, this is a common trope on the right — the “but they have cellphones!” argument. The empirical literature on this subject is still very much in flux, and there is not a consensus. Some recentstudies find that consumption inequality has increased with income inequality. But even if we except the consumption inequality argument, conservatives have some explaining to do. After all, if income inequality has been rising while consumption inequality has stayed the same, where is the spending coming from? Debt. Which means that wealth inequality is increasing, as the rich save more and the poor fall further into debt. Research released this week by Amy Traub of Demos finds that the recent increase in credit card debt hasn’t been driven by profligate spending, but unemployment, children, the declining value of homes and lack of health insurance. Recent research by Emmanuel Saez and Gabriel Zucman show how the bottom 90 percent simply haven’t been able to save their incomes and thereby build wealth. (See chart below.)

Saving rates by wealth class (decennial averages)

Click to enlarge.

Claim: We need lazy rich people

Tyler Cowen is one of the more honest of Piketty’s critics, and there is certainly a lot to like in his review. However, this section is a head-scratcher:

Piketty fears the stasis and sluggishness of the rentier, but what might appear to be static blocks of wealth have done a great deal to boost dynamic productivity. Piketty’s own book was published by the Belknap Press imprint of Harvard University Press, which received its initial funding in the form of a 1949 bequest from Waldron Phoenix Belknap, Jr., an architect and art historian who inherited a good deal of money from his father, a vice president of Bankers Trust… consider Piketty’s native France, where the scores of artists who relied on bequests or family support to further their careers included painters such as Corot, Delacroix, Courbet, Manet, Degas, Cézanne, Monet, and Toulouse-Lautrec and writers such as Baudelaire, Flaubert, Verlaine, and Proust, among others.

How to respond: It’s very true that in the past, many artists, writers and thinkers benefited from familial wealth (or rich benefactors). This, however, is not to be celebrated! It means that marginalized people are frequently removed from mainstream discussion. It’s also a dreadful defense of inequality. As theologian Reinhold Niebuhr writes,“The fact that culture requires leisure, is however, hardly a sufficient justification for the maintenance of a leisured class. For every artist which the aristocracy has produced, and for every two patrons of the arts, it has supported a thousand wastrels.”

Poverty and oppression can also create other powerful types of art, from boheim to the blues. More important, there are far better ways to fund the arts than throwing money at rich families and hoping they cook up something nice. For instance, the National Endowment for the Arts has funded arts education, dance, design, folk and traditional arts, literature, local arts agencies, media arts, museums, music, musical theater, opera, theater and visual arts. In the aftermath of the Great Depression the Works Progress Administration had an arm devoted to funding the arts that supported Jackson Pollock, William Gropper, Willem de Kooning, Leon Bibel and Ben Shahn. The CIA haseven gotten into the game.

As Niebuhr notes, “An intelligent society will know how to subsidize those who possess peculiar gifts … and will not permit a leisured class to justify itself by producing an occasional creative genius among a multitude of incompetents.” It’s a wonder that conservatives want the wealthy financing art and philosophy — Marx, after all, would have died of penury without the beneficence of the wealthy Engels. Given that his economist friends have been impressed by Piketty’s cultural depth because of his ability to cite Jane Austen, I wouldn’t put much weight on their cultural defense of privilege.

May 24, 2014

What Piketty strongly suggests is that the structures of capitalism not only regenerate worsening inequality, but now drive us toward a system of economic peonage and political autocracy.

It has been a long, long time since Americans accepted the advice of a French intellectual about anything important, let alone the future of democracy and the economy. But the furor over Thomas Piketty's stunning best-seller, "Capital in the 21st Century" — and especially the outraged reaction from the Republican right — suggests that this fresh import from la belle France has struck an exposed nerve.

What Piketty proves, with his massive data set and complex analytical tools, is something that many of us — including Pope Francis — have understood both intuitively and intellectually: namely, that human society, both here and globally, has long been grossly inequitable and is steadily becoming more so, to our moral detriment.

What Piketty strongly suggests is that the structures of capitalism not only regenerate worsening inequality, but now drive us toward a system of economic peonage and political autocracy.

The underlying equation Piketty derives is simple enough: r>g, meaning that the return on capital (property, stock and other forms of ownership) is consistently higher than economic growth. How much higher? Since the early 1800s, financiers and land-owners have enjoyed returns of roughly five percent annually, while economic growth benefiting everyone has lagged, averaging closer to one or two percent. This formula has held fairly steady across time and space. While other respectable economists may dispute his methodology and even his conclusions, they cannot dismiss his conclusions.

As a work of history and social science, "Capital in the 21st Century" outlines a fundamental issue, while offering little in policy. Piketty mildly suggests that nations might someday cooperate in a progressive and global taxation of capital gains, with shared proceeds. There isn't much reason to hope for any such happy solution, but then it isn't up to Piketty to solve the problem.

He has done America and the world a profound service by demolishing an enormous shibboleth that has long stood as an obstacle to almost every attempt at economic reform, from raising the minimum wage to restoring progressive taxation: Only if we coddle the very wealthy — and protect them from taxation and regulation — can we hope to restore growth, employment and prosperity.

Only if we meekly accept the revolting displays of power and consumption by the very fortunate few can we expect them to bestow any blessing, however small, on the toiling many.

If you read Piketty — whose translation into English by Arthur Goldhammer makes macroeconomics a literary pleasure — you willquickly realize that we've been told a big lie about this most basic social bargain. The stratospheric accumulation of rewards accruing to the top 0.01 percent of owners, at the expense of society and everyone else, is not only unnecessary to promote growth; in fact, that unfair dispensation retards growth.

Rather than argue honestly with Piketty's findings, right-wing responses have varied from old-fashioned redbaiting, although he is plainly no communist, to juvenile misrepresentation of a book that at least one critic admits she didn't bother to read! The boneheaded tea party reaction is to accuse him of demanding that sanitation workers earn the same salary as surgeons — although he explicitly agrees that a degree of inequality is important to encourage innovation, enterprise and industry. But then the wing nuts and trolls attacking him have no interest in debate, let alone knowledge. They hate social science just as much as they hate plain old science.

For the rest of us, Piketty's opus poses an epochal challenge. Confronted with the truth about exacerbating inequality and the costs imposed on democratic society, what are we going to do about it? History provides a few clues if not a blueprint. The highest level of economic equality and social strength in the West arrived during the postwar era — back when unions were strong, taxes restrained the rich, minimum wages were higher, and redistribution was not a dirty word.

It will be the task of the next generation to restore decency and democracy — and save the planet — against the ferocious political resistance of the super-rich. They can now begin by discarding the ideological illusions that Piketty has so neatly dispatched.

Copyright Creators.com

ABOUT Joe Conason

Joe Conason has written his popular political column for The New York Observer since 1992. He served as the Manhattan Weekly’s executive editor from 1992 to 1997. Since 1998, he has also written a column that is among the most widely read features on Salon.com. Conason is also a senior fellow at The Nation Institute.

May 23, 2014

Utilizing massive historical documentation, Thomas Piketty argues that as returns to invested capital outstrip the rate of economic growth, income from wealth grows faster than the economy – concentrating more and more money and power in the hands of a few. As these returns are reinvested, inherited wealth will grow faster – concentrating even more money in fewer hands. When incomes from capital become more concentrated than incomes from labor – e.g., today, the wealthiest 10% earn almost the same amount of income as the rest of the country – personal income distribution will also become more unequal. So far, this is not an earth-shaking economic revelation.

No one can deny the fact that those at the bottom and increasingly those in the middle are doing poorly while those in the top 10% are grabbing an increasing fraction of our nation’s income (see: TABLES 1,2).

SOURCE: Piketty and Saez : 2003 data updated to 2012.

Computations based on family market income including realized capital gains (before individual taxes). Incomes exclude government transfers (such as unemployment compensation and social security) and non-taxable fringe benefits. Incomes are inflation-adjusted using the Consumer Price Index.

The 4th column shows the fraction of total real family income (loss) captured by the Top 1%. For example, from 1993 to 2012, average family income grew by 17.9%, but 68% of that growth went to the Top 1% while only 32% went to the Bottom 99%. During the 2009-2012 recovery, income concentration for the Top 1% returned to its huge pre-recession level and then some. Average family income grew only 6%, but 95% of that growth was grabbed by the Top 1% while practically zero went to the Bottom 99%. The Top 1% have about fully recovered from their loss during the 2007-2009 Great Recession, but the Bottom 99% are still sitting with their loss.

In my view, Piketty’s major innovative breakthrough in economic thinking is that the forces at play creating an obscene outsized societal income and wealth inequality – as has been occurring in the U.S. for past 30 plus years – self-reinforce and self-perpetuate inequality to new levels, fostering societal stratification and instability in which people are not moving forward together. Ordinary people are being more and more separated from those with economic and political power.

Unless these forces are reined in and income/wealth distribution becomes fairly balanced as was the case for 30 years after WWII, concentrated asset wealth will continue to benefit the rich and debt will continue to overwhelm the middle class and poor as the latter spend beyond their means to keep up. An economy like the U.S. – that is so dependent on 70% consumption, very low savings (vs. 58% consumption in Europe and 10-12% savings), stagnant wages, and maxing-out credit card debt to achieve a reasonable GDP growth – inevitably ends up reducing both consumer expenditures and economic growth and increasing personal debt levels - driving the next Great Recession where the rich will again come out on top.

Part of the self-perpetuating enriching process of the few stems from a political system that is poisoned and warped by the influence of big money – a system giving inordinate power to those at the top. And the warping process is getting worse as the wealth of the top 10% grows larger. Those at the top take advantage of their market and political power not only to limit redistribution but also to shape the rules in their favor in order to increase their own income and wealth at the expense of the rest.

Let’s be clear: this paper is not about arguing for a system of equality of income and wealth, a favorite line of dogmatic conservatives. It’s about recovering a system we once had of equality of opportunity, a decent wage and fair play i.e. a rising economic tide that brings the standard-of-living of all citizens “commensurably” forward … precisely the opposite of what one sees happening in TABLES 1 and 2. During the 2009-12 recession recovery, the wealthiest 1% captured 95% of income growth, while the bottom 90% became poorer.

SOURCES: The World Top Incomes Data Base; The Washington Post; Sloan School of Management; U.S. Treasury Department; U.S. Census Bureau; Piketty and Saez, etc.

If the above doesn’t confirm a process that is phasing out the middle class, what does? Most Americans have seen their incomes sink or stagnate while incomes of the top 1%, 5% and 10% have come about at the expense of those below. The median income (adjusted for inflation) even for households of individuals with a bachelor’s degree or higher fell by a tenth from 2000 to 2010. (see: http://www.census.gov/hhes/www/income/data/historical/household/ ) .

U.S. family members are working up to 60 hours a week and using credit card debt to maintain their standard of living. The average real minimum wage of $10.69 has steadily declined from 54% of average real hourly earnings of $19.85 in 1968 to 36% of real average hourly earnings of $20.31 today based on a real minimum wage of $7.25 in 2013. (Source: Congressional Research Service, “Inflation and the Real Minimum Wage,” Jan. 8, 2014). Shockingly, the U.S. average CEO salary has exploded exponentially from 44 times the average worker salary in 1974 to over 300 times, in 2013. In sharp contrast, the EU average CEO salary has been relatively stable at 44 times the average worker salary in 1974 to 50 times today.

The wealthy lost some of their wealth in the Great Recession as stock prices declined, but the 1% wealthiest now hold 240 times the wealth of the typical American – twice the ratio in 1962 and 1983 when the numbers were already sky-high at, 125 to 1 and 131 to 1, respectively. A hollowing-out of 80% of working Americans is in process where mobility upward has been at a standstill, with nearly rock bottom wages, few benefits, and labor rights.

Piketty’s main thesis is about pure capitalism’s inevitable, automatic creation of an ever expanding income and wealth concentration for the few and relative stagnation of incomes and wealth for the rest. His thesis revolves around what is termed “The first fundamental law of capitalism,” which incorporates Piketty’s following economic values for determining inequality:

(a) = the share of capital incomes in national income

(r) = the rate of return, in real terms, on capital

(g) = the rate of growth of the economy

(B) = the ratio between capital income and national income

Piketty’s historical studies show that the (B) ratio was a very high 7 in the UK and France, 6 in Japan, and 5 for the U.S. prior to WW I. During the next 50 years through 1975, the (B) ratio dropped precipitously to about 3.5 in the UK and Europe and to below 4 in the U.S., the latter helped by much higher marginal tax rates, a labor-friendly atmosphere, higher inheritance taxes, etc., causing a far more equitable personal income and wealth distribution. In the last 35 years, the (B) ratio has soared back to levels corresponding to those before WWI.

The first fundamental law of capitalism says that the share of capital incomes in national income, (a), is equal to the rate of return on capital, (r), times the ratio between capital income and national income (B). Concerning this law, Piketty’s brilliant finding is that when the rate of return on capital (r) is permanently above the rate of growth of the economy, (g), then the share of capital in national incomes, (a), increases. This, in combination with an increasing ratio between capital income and national income, (B), will drive the share of capital in national income to new high peaks thereby also intensifying income and wealth inequality to a more dangerous level.

Just as climate change from accelerating CO2 emissions is intensified by positive feedbacks, so is wealth concentration intensified by a positive feedback. Piketty clarifies this feedback in simple language. As capital’s share in national income increases, capital owners become wealthier. Assuming they do not consume the entire return on their capital, they will have savings to reinvest to further increase their wealth share. This is in sharp contrast to the bottom 90% of the working population which has most of its capital tied up in homes and some in stocks, bonds or small proprietorship businesses. Their small annual capital gains are mainly used to maintain personal living standards.

In a recent interview, Piketty illustrated what one person called his “First law of inequality,” and its inevitability under capitalism with the following example:

“Imagine a hypothetical village from centuries ago where neither the population nor the economy was growing. …. Even in a zero-growth society, however, assets that helped people to produce goods – also known as “capital” – had value. In our hypothetical village, a large farm might produce $10,000 worth of crops in a year, yielding $1,000 in profit for its owner. A small farm might have the same 10% rate of return on $1,000 in annual crop sales, yielding $100 in profit. If the large farmer and small farmer each spent all their money every year, the situation could continue ad infinitum, and the rate of inequality in the village would NOT change.

But one of capital’s greatest advantages is that its owners can make enough income to spend some of their money, save and eventually reinvest the rest. If the large farmer saved $500 of that $1,000 profit, he could buy more capital assets, which would bring in more profit. Perhaps a few owners of small farms had small debts to pay, and one of the large farmers bought them out. Eventually, the owner of the expanding farm might find himself owning land that yielded $1,500 or $2,000 in annual profit, allowing him to put aside more and more for future capital acquisitions. Less stylized versions of this story have been playing out for centuries.”

As the interviewer noted, “The fact that the rich earn enough money to save money allows them to make investments (many times at low capital gains tax rates) that other people cannot afford. And the investments often bring in a positive return on capital generally higher than the rate of economic growth.” This capitalistic process efficiently creates income and wealth inequality. Piketty describes this relationship, when the rate of return on capital exceeds the rate of growth of the economy, as (r) exceeds (g).

Will (r) Always Exceed (g)?

Piketty cynically thinks the marginal return to capital will not decline. In his opinion, global competition for capital and the financial sophistication to find new, productive uses for capital will all help to keep the return on capital (r) at a higher level than (g). Unless this is checked by appropriate taxation and by aggressive establishment of worker-owned enterprises, including public banks and credit unions for start-up and expanding small businesses, then a continuing high (r) spells Big problems ahead for the economy, for quality-of-life and societal stability.

Right now, despite slower job growth, Europe’s advanced economies are far better balanced in the functional, fair distribution of income and wealth as well as recycling of national income for social well-being. Here, tax rates progress substantially for personal taxable incomes in the highest tax bracket. The Netherlands is a typical example of this. The maximum Dutch tax rate for incomes above $80,000 (Euro 55,991) is 52% compared to a U.S. maximum tax rate of 39.6% on income above $425,000 for a head of household. The Dutch tax rate on savings and investments is 30% compared to a far lower U.S. capital gains tax rates. Further, U.S. Top 1%, 5% and 10% income earners can divert much income into relatively low capital gains with tax rates varying from 0% for those in the 10% to 15% brackets up to 20% for those in the highest 39.6% tax bracket. This has helped accelerate U.S. wealth concentration to the highest levels in the world for top 10% income earners – with the possible exception of Saudi Arabia or Dubai.

A U.S. societal transformation to shared ownership and public banking will help diversify rather than concentrate wealth. Such an approach roots the incomes and wealth it generates back to communities and regions – as opposed to transferring profits, assets and resources away from Main Street communities to Wall Street’s multinational corporations and their global shareholders.

As the IMF has stated recently, “Policies that reduce inequality have a more benign effect on growth than once thought.” In fact, they will spur growth by putting more money in middle class pockets to save and consume without relying so heavily on debt to maintain a decent living standard.

“The issue is not how we shall make everyone equal. We can’t do that, though we can hand tyrannical power over to those who promise to do it for us. The question is how we can establish and maintain a decent social structure that ties, however loosely, the garnering of great wealth to the promotion of the general welfare while limiting evil conduct in the pursuit and use of wealth …. As Aristotle recognized, more than 2,000 years ago, a successful polity must have a strong middle class. People who have a substantial stake in the economy while still having to work within it are necessary for that economy’s stability. Such folk also are necessary for political and social stability because they thrive, not on “creative destruction” (which is, after all destructive) but rather on hard work (editor: fairly compensated for value contributed) aimed at steady, intergenerational improvements.”

May 14, 2014

Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.

The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.

We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.

But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.

Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.

What has Happened

The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.

The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.

Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

Why It Threatens Our Society

This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.

The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.

Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.

The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.

Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.

But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.

In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.

Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.

The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.

When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.

Why It Has Happened

Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.

These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.

But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.

We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.

Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.

What We Must DoThere is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.

6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.

Building a MovementIt’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.

May 04, 2014

Now that Thomas Piketty has clued us in in his book Capital in the Twenty-First Century that the upper one percent is making all the money and that the middle class is getting screwed, as if we didn't already know that, the question remains what should we do about it. Paul Krugman seems to think that government should redistribute money from the wealthy to the poor, and this would be a good solution, one that is achieving good results in Europe, but, since the US government is owned by the wealthy, one that is unlikely to be manifested here any time soon. Piketty points out that income is derived from two sources: labor and return on capital or wealth. Capital and wealth are essentially synonymous by the way. Here's Lesson #1: capital or wealth is not static; it generates income all by itself in the form of interest, dividends or rent.

The good news is that you don't have to be “wealthy” to derive at least part of your income from wealth. The more income you derive from wealth, the less you have to derive from your labor. The average American, however, is not aware of this truth. Lesson #2:you don't have to be "wealthy" to derive some or all of your income from wealth. Neither do you have to be an exceptionally talented person and/or start a Fortune 400 corporation like Bill Gates (Microsoft) or Irwin Jacobs (Qualcomm) to derive part or all of your income from capital.

The problem is that most middle class Americans have been programmed to derive all of their income from labor, and they have been programmed to spend all of their income on consumer items. That's the paradigm that needs shifting. The conventional wisdom is that everyone should go to college. (This piles up student loan debt payable to Wall Street.) Next buy a house. (This comes with a mortgage payable to Wall Street.) Next buy a car. (Make that payable to Wall Street.) And then to make your lifestyle complete, spend to the max on your credit card. This lifestyle makes you poor and Wall Street rich. Over the course of a lifetime, perhaps as much as two thirds of all your expenditures will be interest payments to Wall Street via their local store fronts - Bank of America, Wells Fargo and Citibank.

To suggest, as I'm doing, that there is an alternative lifestyle of low consumption and wealth creation for the average Joe is revolutionary in and of itself because the American GDP is 70% consumption. The big corporations can't survive if everyone consumes say 30% less and puts that money into wealth creation for themselves instead of wealth creation for Wall Street.

The middle class dream of a good job which comes with a pension and a comfortable retirement is passe. The premise is that you will work all your life till retirement and then you will get a pension till you die. But pensions have gone by the wayside having been replaced with an even more insidious bag of worms: the 401k. First let me tell you why even pensions are a sick form of wealth creation for you. Your money was set aside in a separate account presided over by a pension fund manager. The income stream from the wealth that that created was used to pay your pension.

The wealth or capital itself, however, was owned by the corporation or government so that, when you died, the capital in and of itself went to the corporation or government and not to your heirs. Again you were used to create wealth for a corporation not for yourself. Secondly, pension funds have been raided by corporate raiders and hedge fund managers for years. Financier Ronald Perelmen took over Revlon in 1985, shut down its pension plan and got control of more than $100 million in surplus pension assets. Charles Hurwitz took over Pacific Lumber, closed down its pension and used $55 million in surplus pension assets to help finance his buyout.

If you took the same amount of money that was put in a pension fund and invested it yourself, not only would you derive the income stream generated by the resultant wealth, but, when you died, the principal amount could be passed on to your heirs and they could derive the income stream in perpetuity. Lesson #3: Generate your own wealth. Don't depend on a corporation or the government to do it for you.

As exploitive as the pension system is, the 401k is even worse. First, there is no guarantee that you will be able to even derive an income stream from it at all which will afford you a comfortable lifestyle after you "retire." That means that you will essentially consume your asset instead of consuming an income stream from it that leaves your asset intact. And what will you do if it's gone before you die? Second, Wall Street managers are milking your 401ks, siphoning off huge amounts for themselves. Forbes says management fees are the "last great rip-off in retirement saving". Third, since the money is invested on Wall Street, you don't know when the next financial cataclysm is coming that will make the bottom fall out of the stock market like it does periodically. The big guys, the high frequency traders and front runners, will sell short and make big profits. The average person with a 401k will see its value plummet perhaps just prior to retirement. The US economy consists of bubbles which are inflated by government policies and then burst leaving the little guy in the lurch. The bursting of the stock market bubble in 2000-2001 and the housing bubble in 2007-2009 left the middle class poorer while the upper 1% only garnered a huger share of national income and wealth. Check out Piketty's book if you don't believe me.

So what I recommend is to accumulate wealth without resorting to a pension or a 401k, wealth that will allow you to derive part or all of your income from it at any age regardless of the rules about when you can or cannot "retire". Lesson #4: The objective is to replace income derived from your labor with income derived from your wealth. Again you don't have to be “wealthy”, you don't have to be a millionaire, to replace income derived from labor with income derived from wealth. And you don't have to have a “wealthy” lifestyle, you don't have to own a big house, a yacht, a big car etc to be living off an income stream derived from capital. In fact you can lead a comfortable middle class lifestyle and derive all your income from wealth. Such is the nature of retirement.

The “wealthy” person with a huge house, several luxury cars and an ostentatious lifestyle may not be deriving any income from wealth at all. She may have a huge salary and spending every bit of it on mortgage, car, credit card and student loan payments, most of this going to Wall Street. She is in fact just a mega consumer and is probably house poor. Far from being a repository of wealth, a huge house is an income sink because of mortgage payment, insurance, maintenance and property taxes. The plumber with a couple of rental units may be deriving more of his income from wealth than she is. Lesson #5: Ostentatious consumerism has nothing to do with deriving an income stream from wealth.

What I'm proposing is to stay away from Wall Street both as a consumer and an investor, not lead a life of conspicuous or ostentatious consumption and gradually over time replace income derived from labor with income derived from capital. Piketty points out that capital is almost evenly divided between real estate and financial instruments. Lesson #6: Avoid financial assets that mainly accrue to the benefit of Wall Street and invest in local real estate instead. The current stock market bubble will burst sooner or later leaving the little guy with a 401k broke.

I grew up in a town of 1500 people and two guys that I knew accomplished this objective without being particularly entrepreneurial or talented. Irv Treiser was an optometrist, and I imagine he wasn't busy full time with his optometry business. He had the time and energy to buy fixer uppers, fix them up and rent them out. He thus created wealth and derived an income stream from the rents he received. Thus he could work or not as he chose. He wasn't absolutely dependent on his own labor because he had an alternative income derived from wealth. Art Siegle, the plumber who lived next door to Irv, did the same thing. Joe Albright, the barber, did the same thing. If they needed a loan, they went to see their neighbor, Paul Grau, at the local Farmer's National Bank in town, a bank that was not affiliated with Wall Street.

Or, alternatively, take the $25,000. that you would invest in a college diploma and invest it instead in a piece of farmland and start an organic farm. Then at least you have an asset from which you can derive an income from both your own labor and the capital represented by the farm. For example Susie's farm is a local farm producing organic crops for the people of San Diego. This is from their website:

Suzie’s Farm is a 140-acre USDA-certified organic farm located thirteen miles south of downtown San Diego. We grow over 100 varieties of seasonal vegetables, herbs, flowers, and fruits, year-round. Our Suzie’s farm-ily includes 85 employees, a handful of happy farm dogs, and a fleet of 300 egg-laying hens.

One of the exciting possibilities inherent in organic farming is CSA (Community Supported Agriculture) in which members of the community sign up for a box of produce at intervals of time and in effect become shareholders in the farming project.

There are many other ways to lead a healthy lifestyle while building wealth and serving the local community, combining sweat equity with a capital asset. Lesson #7: You can lead a productive life doing something you enjoy, serve the local community and build wealth at the same time. You can have a comfortable lifestyle devoid of ostentatious consumption while allowing you the free time to do whatever it is you really want to do whether that is surfing, skiing, traveling, playing golf or composing poetry. And you don't have to reach "retirement age" in order to enjoy it. Unlike a pension, when you leave this earth, you can pass on your assets to your children.

The American lifestyle is so consumed by work that most people don't have the energy to create wealth after work. Most people work eight hours with a one hour commute and a one hour lunch. They have no energy to do anything else but flop in front of the TV when they get home and run up their credit cards. You really need to have your own business like Art, Irv and Joe and work part time in order to have the energy to create your own wealth. Lesson #8: Have your own business and work part time. This allows you the time and energy to build wealth in local real estate or anything else. It's important to be self-employed and not be an employee of somebody else. For example, I make 5 or 6 times as much money per hour being self-employed as I would doing the exact same work as an employee. This allows you to meet basic living expenses without working full time. And you have to underconsume, putting your money not into savings which yields zero interest these days, but into building wealth by other means. It also helps to acquire carpentry, electrical, plumbing and other skills preferably in high school so that you can put sweat equity into building wealth instead of acquiring the worthless knowledge foisted on you in order to get a sufficiently high SAT score to get into college. Remember Einstein said that if he had it do over again, he would have been a plumber. And he could have been a plumber and worked out his Relativity Theory in his spare time.

Today around 10 percent of domestic production in the rich countries is due to nonwage workers in individually owned businesses, which is roughly equivalent to the proportion of nonwage workers in the active population. Nonwage workers are mostly found in small businesses (merchants, craftsmen, restaurant [owner/workers], etc.). For a long time this category also included a large number of independent farmers, but today these have largely disappeared.

On the books of these individually owned firms, it is generally impossible to distinguish the remuneration of capital: for example, the profits of a radiologist remunerate her labor and the equipment she uses, which can be costly. The same is true of the hotel owner or small farmer. We therefore say that the income of nonwage workers is "mixed," because it combines income from labor with income from capital. This is also referred to as "entrepreneurial income."

Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.

Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.

This growing divergence between CEO pay and that of the typical American worker isn’t just wildly unfair. It’s also bad for the economy. It means most workers these days lack the purchasing power to buy what the economy is capable of producing — contributing to the slowest recovery on record. Meanwhile, CEOs and other top executives use their fortunes to fuel speculative booms followed by busts.

Anyone who believes CEOs deserve this astronomical pay hasn’t been paying attention. The entire stock market has risen to record highs. Most CEOs have done little more than ride the wave.

There’s no easy answer for reversing this trend, but this week I’ll be testifying in favor of a bill introduced in the California legislature that at least creates the right incentives. Other states would do well to take a close look.

The proposed legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break.Those with high ratios get a tax increase.

For example, if the CEO makes 100 times the median worker in the company, the company’s tax rate drops from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the pay of the typical worker, the tax rate goes down to 7 percent.

On the other hand, corporations with big disparities face higher taxes. If the CEO makes 200 times the typical employee, the tax rate goes to 9.5 percent; 400 times, to 13 percent.

The California Chamber of Commerce has dubbed this bill a “job killer,” but the reality is the opposite. CEOs don’t create jobs.Their customers create jobs by buying more of what their companies have to sell — giving the companies cause to expand and hire.

So pushing companies to put less money into the hands of their CEOs and more into the hands of average employees creates more buying power among people who will buy, and therefore more jobs.

The other argument against the bill is it’s too complicated. Wrong again. The Dodd-Frank Act already requires companies to publish the ratios of CEO pay to the pay of the company’s median worker (the Securities and Exchange Commission is now weighing a proposal to implement this). So the California bill doesn’t require companies to do anything more than they’ll have to do under federal law. And the tax brackets in the bill are wide enough to make the computation easy.

What about CEO’s gaming the system? Can’t they simply eliminate low-paying jobs by subcontracting them to another company – thereby avoiding large pay disparities while keeping their own compensation in the stratosphere?

No. The proposed law controls for that. Corporations that begin subcontracting more of their low-paying jobs will have to pay a higher tax.

For the last thirty years, almost all the incentives operating on companies have been to lower the pay of their workers while increasing the pay of their CEOs and other top executives. It’s about time some incentives were applied in the other direction.

The law isn’t perfect, but it’s a start. That the largest state in America is seriously considering it tells you something about how top heavy American business has become, and why it’s time to do something serious about it.

May 02, 2014

Inequality and its corrosion of the body and the soul of capitalist societies has been the hottest topic among respectable liberal economists and political analysts in the United States since the crisis of September 2008. To be sure, Left economists have been tracing the twin scourges of flatlined real wages and widening inequality since the mid-1970s. But it took a major economic shock to move the most prominent and acute liberal pundits finally to bring the issue to the front of the line. Widely read liberal economists have over the last four years written books on the evils of inequality: Joseph Stiglitz’s The Price of Inequality, James Galbraith’s Inequality and Instability, Robert Reich’s Aftershock, and its theatrically released dicumentary replica, Inequality For All, and Paul Krugman’s End This Depression Now! are only the most conspicuous of the outpourings of lamentation over what is now perfectly evident as inequality on the move – the gap between the very wealthy and the rest is entrenched and continuously widening. The embedded and worsening nature of capitalist inequality, and the kind of society it is creating, is one of the major foci of Thomas Piketty’s much-heralded book, Capital in the Twenty-First Century.

Before the new book, Piketty was known mainly by scholars as the co-compiler, with Emanuel Saez of Berkeley, of the most reliable and widely accessed stastistical data on the distribution of income in the United States. Piketty’s first major solo outing has been a phenomenal smash. Astonishingly, it currently ranks as Amazon’s number one seller, and is sold out. It’s at the top of The New York Times best-seller list. Branko Milanovich, former senior economist at the World Bank, described the book in The New Yorker as “one of the watershed books in economic thinking.” In The New York Times Krugman lauds the book’s “serious, discourse-changing scholarship,” and in The New York Review of Books he calls it a “magnificent, sweeping meditation on inequality… sheer, exhilarating intellectual elegance… Piketty has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.” Wow.

What elicits my “wow” is not so much Krugman’s exhilaration, but the huge disconnect, apparently unnoticed by Krugman and other impressive left-liberal economists, between Piketty’s analysis and the kind of Keynesianism that Krugman and his cohorts see as the only path to rescuing American capitalism from a future of persistent austerity and declining democracy. Piketty’s liberal champions seem to think that he has vindicated their critique of inequality by providing a rigorous methodology pinpoint appropriate to the subject matter and demonstrating conclusively that inequality is not only the most disturbing feature of capitalism, but that it is far more severe than previously imagined, and portends a future more revolting than any of us dared imagine.

Piketty has indeed accomplished all this, but the argument by no means confirms the fundamental approach of respectable liberal economists. On the contrary, their bread-and-butter orientation, Keynesian fiscal policy, is seriously undermined by Piketty’s analysis. And what Piketty recommends as the only effective remedy he also correctly describes as “utopian,” virtually impossible under the existing economic system. The book is profoundly pessimistic, and its author seems to know this. If the existing economic system makes Piketty’s prescription -a global tax on wealth- virtually impossible to realize, why does he not question the system itself, and describe the outlines of a workable alternative? Because Piketty’s conception of the most discussed alternative, democratic socialism, is inexcusably narrow. He identifies socialism with Soviet Communism, a model long discarded by all of the participants in the inquiry into what a workable, desirable form of democratic socialism would look like.

While I contend that Piketty’s overall analysis is seriously flawed, I do not slough his book off as merely another usefully informative but essentially wrongheaded piece of predictable, orthodox neoclassical analysis. To be sure, Piketty leans throughout on neoclassical methodology, but never on its essentially apologetic assertions, the big ones that count: that the market allocates resources efficiently, employs all available resources and that its rewards, the income it distributes to “factors of production” (capital and labor), reflect the recipient’s work, her contribution to production. One of his main contentions is that an increasingly disproportionate amount of national income accrues to the wealthy who make no contribution whatever to the production of output. What is rewarded is their ownership of assets, increasingly assets they have inherited, not earned – and ownership by itself is not a productive activity. The argument does not proceed along typically neoclassical lines. Piketty’s case leans as heavily on a wealth of backgound knowledge of history, politics and even literature as it does on charts and tables. This kind of intellectual range is almost entirely absent from the best mainstream contributions. Like Marx, Piketty shows how, for example, the world’s great literature can figure into the development of a consequential political-economic analysis.

This book is important and sometimes profound. But most interestingly, and behind its own back, the book tells us more about the unique historical juncture at which capitalism now stands than it knows. And much more that its enthusiasts know.

I want briefly to sketch Piketty’s most important arguments, and then to spell out what I take to be their so-far-unacknowledged import for our understanding of the current crisis, and of the realistic options available to us.

The Main Arguments

Piketty has identified not merely an empirical trend in the historical development of capitalism. He has pinpointed a tendency, a dynamic movement inherent in the nature of the capitalist market itself. He argues that increasingly disproportionate concentration of income at the top, and the widening inequality that goes along with it, is integral to the system and a consequence of “the central contradiction of capitalism,” (Capital, 571) his counterpart to Marx’s law of the falling rate of profit. Piketty’s core theoretical concept is expressed in the formula ‘r>g’, where ‘r’ represents the return on capital/investment, and ‘g’ the rate of growth of the economy. (25-27) In an interview with The Guardian (April 13, 2014) he sums up the theory: “[C]apital, and the money that it produces, accumulates faster than growth [of production and total income] in capitalist societies.” Accordingly, income from the ownership of assets will increase faster than income deriving from real contributions to production, from, for example, wages and salaries of working people. Capital’s share of total income (which is the money value of total national product) will rise. Because capital can consume only a small portion of its income, the lion’s share will be reinvested. The return on each additional investment further increases capital’s share of national income. The very class for whom Keynes recommended merciful “euthanasia,” rentiers who garner huge rewards for doing nothing, gets ever-wealthier and smaller in number. The result is built-in inequality. This condition is thus not static; the disparity will continuously widen and concentrate increasing wealth in fewer hands.

This dynamic is the way capitalism has to work. There is no question of policy “mistakes” or a malfunctioning system. Growing inequality ‘is not the consequence of any market “imperfection”.’ (Capital, 573) Once capital is in place, it must expand itself faster than output and total income increase. Piketty makes it clear throughout the book that while this tendency can be and has been intensified by political agency such as tax reductions for the wealthy and deregulation, ‘r>g’ represents the logic of unfettered capital itself. With capital necessarily concentrated at the top, not only will income continue to be driven upwards, but an ever-increasing percentage of income will congeal in the hands of the very few. The wealthy need not move a muscle to accomplish this. Inequality will increase forever because capital is capital. So much for meritocratic conceptions of how capitalism distributes its rewards. The wealthy have not earned their pleasures or their advantage over the 99.9 percent. Because they have done nothing to merit disproportionate incomes -to merit any income at all?- they do not deserve their incomes. The chief justification for capitalism’s growing inequality dissolves, with the clear implication that capitalism’s defining property arrangements are unjust. (Capital, 264)

Like Keynes, Piketty sees this as more than a question of ethics. Many of those who read Keynes and Piketty are unmoved by being told that they have transgressed some principle of morality or justice. For the very wealthy, accumulating capital is itself a moral imperative. Recall Lloyd Blankfein’s boast that Goldman is “doing God’s work.” Keynes worried, more practically, that protracted poverty and inequality can breed popular hankerings for revolution. Pikkety forecasts that “we will all be poorer in the future in every way and that creates crisis… the present situation cannot be sustained for much longer.” (Guardian interview)

Piketty understands that the situation is especially critical in the United States: “What primarily characterizes the United States at the moment is a record level of inequality of income from labor (probably higher than in any other society at any time in the past, anywhere in the world…)” (Capital, 265) Could it get any worse? One of Piketty’s most important original contributions is his demonstration that yes indeed it can and will get worse. That’s because of one of capital’s most cherished institutions, inheritance.

Growing Inequality + Inheritance=Dynastic Rule

If capital’s growing share of total income and total production grow faster than the economy, and that fortune can be bequeathed to capital’s heirs, the tendency will be for an ever-larger share of the nation’s wealth and income to be in the possession of not merely “wealthy households,” but dynasties. That is, the predominant form of wealth becomes inherited wealth. The heirs are in the catbird seat. B inherits wealth from A, and in turn bequeaths it to C. But what B bequeaths to C is greater in value than what he inherited from A. Likewise, what C bequeaths to D will be greater than what was passed on to him by B. The series goes on infinitely. And keep in mind that we are talking not merely about absolute stores of economic value, but shares, ever-larger shares, of total national income/output.

Inheritors of what will have become dynastic wealth will resemble the rulers of nations like Kuwait and Saudi Arabia, where the nation is in fact a fiefdom, the private property of a family. The heirs become rentiers on stilts. That great wealth is earned, that its owners have done something to deserve their fortune, becomes transparently preposterous. The justificatory notion that the rich have what they have because they, in Piketty’s words, “work harder or more efficiently than the poor” becomes patently false. (Capital, 264) It becomes apparent, not an inference from good theory, not the conclusion of a “powerful moral argument,” that America is ruled by rentiers, the contemporary counterparts of kings and queens. While it is now a truism that financial oligarchs dominate American politics, the appearance of a separation of political and economic power persists. When all great wealth is inherited, which Piketty suggests will occur, if current tendencies persist, by 2030, the appearance of political and economic power as two separate spheres will vanish. There will of course remain the separate institutions of private and public wealth; the categories ‘privately owned’ and ‘government-owned’ assets will not be erased. But the relation between private wealth and political power in capitalist societies being what it is, these formal separations will constitute a distinction without a political difference.

We are heading, Piketty argues, toward a “hyperpatrimonial society,” the historical reincarnation of the Belle Epoque, the Ancien Regime or the American Gilded Age. In such an order, the realities of class rule are part of common sense and uncontroversial. Piketty claims, strangely, that this is not what capitalism “should” be about. But he has shown that left to its own devices capitalism produces outcomes regarded as revolting by all but the super-rich. Hasn’t he shown that in fact capitalism and democracy are not compatible, and that the system in actual effect exists in order to enrich the wealthy at the expense of the rest? After all it’s called Capitalism, not Laborism or Workerism. The idea is to expand The Wealth of Nations (to coin a term). Wealth is not income; by nature it belongs to the few.

Piketty has brought to bear on his thinking about capitalism values which are external to capitalism. Under the regime of capital, equality is equality before the law. This is entirely compatible with gross material and political inequality. Bankers are happy to be, along with beggars, equally forbidden to sleep on park benches. Piketty’s stance is a bit like that of a statutory inferior under feudalism complaining that under the manorial system there is no equality before the law. But feudalism is essentially about statutory inequality; otherwise it wouldn’t be feudalism. In the Guardian interview Piketty claims “I have proved that under the present circumstances capitalism simply cannot work.” Work for whom? Of course it doesn’t work for workers. What Piketty has shown, behind his back, is that capitalism is not meant to work for workers. It does what it is meant to do, not what humanitarian ethical theory says it should do. Capitalism has worked very nicely for the plutocracy. They have never done so well, never had greater riches and never before had virtually complete control of the State. And Piketty himself has underscored that this is not due to the system’s malfunction. In generating the outcomes Piketty deplores capitalism is merely, as the song goes, “doing what comes naturally.”

I want to suggest that Piketty is confused here, and that the confusion stems in large part from his misconstrual of the conditions that make for equality.

The Politics of Equality

Piketty demonstrates convincingly that the twentieth century exhibited a secular tendency toward continuous and widening inequality. Almost continuous, that is. Three catastrophic events external to the workings of capitalism depressed briefly the steady growth of wealth and reduced inequality. These were the two World Wars and the Great Depression. (Capital, 136-7, 148, 275) Here the discussion gets murky. Did not Keynesian social democracy bring about the reduction of inequality, and in the United States were not the New Deal and the Great Society brought about by major labor struggles and a wave of unionization, which scared the pants off the ruling class? Wasn’t the gross inequality of the 1920s due to wages falling far behind productivity gains, and wasn’t the relative equality of the Golden Age -the “Trente Glorieuses”- due to organized labor’s ability to keep wages rising with productivity? Social democracy and organized labor merit only fleeting mention (136-7) in Capital in the Twenty-First Century. But in Piketty’s earlier work he and Emmanuel Saez provide hard data that is not given due attention in Capital. (“The Evolution of Top Incomes: A Historical and International Perspective,” American Economic Association: Papers and Proceedings, 96,2 May 2006, pp. 200-205)

From the 1930s to the 1970s the share of total income of the top 1 percent declined steadily. Each decade saw a greater decline. During the New Deal years their share declined from 23 to 17 percent, then down to 13-15 percent in the 1940s, down further in the 1950s and 1960s to 10 or 11 percent and finally to 9 percent in the 1970s. With the defeat of the New Deal and the Great Society, the wealthy began to regain what they had lost during the only period in American history that saw an accelerating 40 year decline in the wealthiests’ share of national income. In the 1980s their share rose to 11-14 percent, in the 1990s to 15-19 percent, to over 21 percent in 2005. By 2007 their share equaled the previous 1928 peak of 23 percent. Recall that 1928 and 2007 were each followed by a financial crash.

What accounted for this remarkable period when Americans enjoyed the highest standard of living they had ever experienced, and capital experienced its greatest defeats? Why this outbreak of relative equality? Militant labor, extensive unionization, ongoing additions to government programs and aggressive black activism were essential factors.

It began during the very first decade that saw downward income distribution. Up until 1934 Roosevelt’s recovery efforts were tepid and barely effective. The New Deal recovery began in earnest in 1935, only after the greatest labor actions in U.S. history up to that time broke out in 1934. Among these was a general strike of longshoremen from Seattle to San Diego, which shut down San Francisco and paralyzed shipping on the West coast. This is the kind of activism that forces egalitarian legislation.

It was this kind of activism that elicited the National Labor Relations Act (NLRA, the “Wagner Act”) of 1935, which marked the first time the federal government unambiguously guaranteed to workers their right to organize and bargain collectively. The Act declared without qualification labor’s right to join unions and bargain collectively. Correspondingly, companies were prohibited from forcing workers to join a company union and from interfering with union organizing. Nor could they harrass or fire activists for attempting to organize workers, and they were forbidden to refuse to participate in collective bargaining with unions.

Government was forced by labor to enact this legislation. During the debate preceding the passage of NLRA Roosevelt had refused to give the proposed legislation his strong approval. He remained aloof until it was clear that Congress was about to pass the Act. As usual during Roosevelt’s first term, Congress was more responsive to popular sentiment than was the aristocratic and fiscally conservative president. In a fiery speech in the House, one representative warned “You have seen strikes in Toledo, you have seen San Francisco, and you have seen some of the Southern textile strikes… but you have not yet seen the gates of hell opened, and that is what is going to happen from now on…” if NLRA is not passed.

The reduction of inequality persisted through the 1970s only because unions remained strong enough during those years to keep wages rising in step with productivity increases, militant labor actions occurred intermittently and black militancy in the inner cities broke out at the same time that strike actions temporarily ebbed. The inbuilt tendency to inequality analyzed by Piketty was countered. Profits rose at the same rate as wages during this period.

After the Second World War American workers were determined not to allow their victories to be reversed. When Washington attempted in 1945 to extend the wartime “no strike” pledge, the response was a national wave of strikes. At least 650,000 auto workers, teamsters, machinists and workers in lumber, coal and petroleum walked off the job. Elites’ fears that the end of the war would be followed by the same large-scale labor actions as had erupted after the First World war were well founded. The earlier strikes had been roundly defeated with the result that the 1920s featured a small and powerless labor movement and stagnant wages.

The labor movement after the Second World War had not forgotten the earlier defeat and was determined to prevent its recurrence. Militant labor actions persisted into 1946, one of the most strike-torn years in American history. One and a half million electrical workers, steelworkers, miners and meatpackers struck. The year ended with a two-day general Strike in Oakland, California. These actions were correctly perceived by government and business as warnings.

The unparalleled equality of the years 1946-1973 was sustained by continuous labor militancy and black insurgence, and would not have been achieved without it. Militancy waxed and waned, but the throughline was consistent. The U.S. topped the OECD table in strikes per worker in 1954, 1955, 1959, 1960 1967 and 1970. And surely the dramatic increase in strikes between 1967 and 1971 was a major factor, along with capital’s declining share of national income, in prompting the business counteroffensive beginning in the mid-1970s. From 1967-1971 an average of 49.5 million strike days were lost, a dramatic increase over the ten preceding years. Business retaliation followed: the Powell Memo urging business to organize in resistance to the post-1920s order, Carter’s reduction of social programs and deregulation of business and, finally, the neoliberal age of Reagan, Clinton, the Bushes and Obama. Government and business were back in 1920s step. Piketty and Saez demonstrated in 2006 the recouping of capital’s share under neoliberalism.

Strangely, labor’s agency is absent from Piketty’s most recent account of the Golden Age reduction of inequality. I am reminded of the traditional debate as to the relative roles of structure and agency in determining the course of the historical process. Pikety’s signature argument in Capital in the Twenty-First Century is that the structural organization of mature capitalism determines greater inequality and a return to the dynastic rule of the Belle Epoche. It seems to stand to reason that agency is required to defeat this tendency. A truly effective agency would have to be aimed at installing an alternative structure, one in which the inevitable emergence of inequality and poverty is ruled out. Unless Pangloss is right and we inhabit the only possible world, the forging of such a structure is both possible and necessary.

What we get instead from Piketty is a stunningly lame prescription: ”What I argue for is a progressive tax, a global tax, based on the taxation of private property. This is the only civilised solution. The other solutions are, I think, much more barbaric – by that I mean the oligarch system of Russia, which I don’t believe in, and inflation, which is really just a tax on the poor.” (Guardian interview) Piketty himself describes this solution as “utopian.” It is not as if he is merely urging a US tax on wealth. He knows that the rich cross borders to evade taxation, so the wealth tax must be global. In an age in which capital rules with greater power than it has ever commanded, and State managers in capital’s pocket govern, a global tax on wealth is the least likely of imaginable political projects. What is required is a coherent conception of a viable alternative, the virtue of hope -ruled out only by a-priori cynicism- and political imagination. An animating vision of a feasible and desirable political-economic alternative structure is essential.

The only alternative Piketty seems capable of imagining is “the oligarch system of Russia,” by which he must mean Soviet Russia, not the current kleptocracy. There is no awareness evident in Piketty’s book of the illuminating and informed contemporary discussions of economic democracy. Gar Alperovitz’s detailed treatment of actually existing worker-owned enterprises, Hahnel and Albert’s defense of anarchist-inflected participatory economics (Parecon), and David Schweickart’s detailed description of just how a market socialist economy would work and why it is eminently practical in a way that capitalism is not, in After Capitalism, must be required reading for someone with Piketty’s ambitions. None of these alternatives is “barbaric.” Piketty’s implicit claim that any alternative to capitalism must be “uncilized” in entirely ungrounded, and in fact Piketty offers no argument in its defense. “must be”? What would such an argument look like?

The Political Counterpart to Piketty’s Thesis: The Gilens-Page Study of American Democracy

Piketty’s hasty dismissal of alternatives to capitalism is evidence of what Pikkety himself seems to acknowledge as his own political naivete. In the Guardian interview he is revealing: “I could see then that so many bad decisions were taken by politicians because they did not understand economics. But I am not political. It is not my job. But I would be happy if politicians could read my work and draw some conclusions from it.”

We are to believe that politicians now speak only the language of neoliberalism because they are inadequately educated in economics. The dominance of the very wealthy in campaign contributions, the overwhelming lobbying of Capital (sic) Hill by business, the standard route from political office to much more remunerative work as a lobbyist, the colonization of the discourse of the press and the Congress by richly funded and highly aggressive reactionary think tanks – none of these is supposed to shape the world view of the state managers. They are moved primarily by ideas, Piketty imagines. Alas, if only they had Piketty’s ideas.

In Capital in the Twenty-First Century, Piketty argues that “democratic control of capital” (569) is needed to steer us straight. “I do not see any genuine alternative: if we are to regain control of capitalism, we must bet everything on democracy.” (573) Let us pass over in silence (as the wily Cicero used to orate) that “regain”ing control of capitalism implies that “we” ever controlled it in the first place. We move on instead to a look at American democracy.

It’s clear that Piketty understands democracy to work through “politicians,” who either channel the wishes of their constituents, or legislate on the basis of their superior knowledge. These are lofty conceits, but they have something of a philosophical, speculative air about them. If we must “bet everything on democracy,” why not have a careful empirical look at how American democracy actually functions? Happily, we now can do just that.

In the world of political science, a major study of democracy in America has received almost as much attention as Piketty’s contribution. In April, Martin Gilens (Princeton) and Benjamin Page (Northwestern) released “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”. Like Piketty’s work, Gilens and Page have introduced original and rigorous statistical models to measure the influence of various significant actors in determining policy outcomes.

There are four major theories in the tradition, each attributing predominant influence to one of four different group political agents. The standard suspects are average citizens, economic elites, mass-based organized interest groups, and business-oriented interest groups. Each theory stands or falls based on the accuracy of the predictions it generates. Gilens and Page are the first researchers to have constructed a single statistical model capable of testing the contrasting theoretical predictions against each other. They bring their investigation to bear on 1,779 policy issues.

Gilens and Page’s conclusions are not consistent with the notion that the American political system is democratic in any meaningful sense of the term. “Majority rule” accounts, construed numerically or by any “median voter” criterion, are found to be a “nearly total failure.” Controlling for the preferences of economic elites and business-oriented interest groups, the preferences of the average citizen have a “near-zero, statistically non-significant impact upon public policy.”

The preferences of economic elites have “far more independent impact upon policy change than the preferences of average citizens do.” This does not mean that ordinary citizens never get what they want by way of policy. Sometimes they do, but only when their preferences are the same as those of the economic elite.

The authors see their results as ‘troubling news for advocates of “populistic” democracy.’ “When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose…even when fairly large majorities of Americans favor policy change, they generally do not get it.”

Gilens and Page conclude that “[M]ajorities of the American public actually have little influence over the policies our government adopts… [I]f policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”

There we have the polite understatement of mainstream academic critics. Actually, the authors’ findings entirely undermine the notion that America is a democracy. The infamous Citigroup memo’s term is the one the authors’ research points to: plutocracy. Piketty’s work, with its detailed analysis and projections regarding inherited wealth, further specifies the general notion of plutocracy. We are witnessing the world’s most remarkable form of patrimonial dynasty.

Piketty would have us “bet everything on democracy.” Fine, but betting wears many hats. If you’re into short-selling, American democracy could land you a fortune. Think about it.

I want to conclude with a more savory take on democracy. The distinguished Nobel-winning MIT economist Robert Solow has anticipated some of Piketty’s conclusions, with recommendations not at all typical of an MIT economist. In a discussion of the tendency for capital to substitute for labor in a developed economy, Solow points out that “profits will come over time to absorb an ever-increasing share of aggregate income… How will we live then?” Solow surprises us: “The answer seems pretty clear. For the grandchildren, or their grandchildren, to have a viable world, the ownership of capital will have to be democratized. If capital is the only source of income that matters, then everyone who matters -in other words, everyone- will need an adequate claim of income against capital.” (“Whose Grandchildren?,” in Revisiting Keynes)

Now Solow’s recommendation is not a call for democratic socialism. His examples of possible income claims against capital are a universal dividend or expanded pension funds. But it is remarkable that the historical development of capital to the point of world-historic crisis is so pronounced that some of the smarter mainstream luminaries are driven to intimations of a radically different economic order. Solow has recommended an option inconsistent with capitalist private property. His democratizing of the ownership of capital is quite unlike Piketty’s “democratic control of capital,” which construes democracy in exclusively political terms. He would have politicians indirectly affecting capital through conventional legislation. But if the use of capital were directly determined by the democratization of investment, i.e. popular control of the uses to which society’s productive potential is put, we would be on the road to something that is not capitalism. Solow has unwittingly set our thinking in that direction.

Piketty, Gilens and Page have taught us more than they imagined about the direction our efforts must take.

Alan Nasseris professor emeritus of Political Economy and Philosophy at The Evergreen State College. His website is:http://www.alannasser.org. His book, The New Normal: Persistent Austerity, Declining Democracy and the Privatization of the State will be published by Pluto Press later this year or early next year. If you would like to be notified when the book is released, please send a request to nassera@evergreen.edu

April 24, 2014

America's rich are surging ahead, but the rest are falling behind. What happened?

Photo Credit: Shutterstock.com/Jeanette Dietl

Fancy living up in Canada? Granted, it’s a bit chilly. But the middle class up there has just blown by the U.S. as the world’s most affluent. America’s wealthy are leaping ahead of the rest of much of the globe, but the middle class is falling behind. So are the poor. That’s the sobering news from the latest research put out by LIS, a group based in Luxembourg and the Graduate Center of the City University of New York.

After taxes, the Canadian middle class now has a higher income than its American counterpart. And many European countries are closing in on us. Median incomes in Western European countries are still a bit lower than those of the U.S., but the gap in several countries, including the Netherlands, Sweden and Britain, is significantly smaller than it was a decade ago. However, if you take into account the cost of things like education, retirement and healthcare in America, those European countries’ middle classes are in much better shape than ours because the U.S. government does not provide as much for its citizens in these areas. So the income you get has to be saved for these items.

The report found also found that the median U.S. income, which stands at $18,700, has remained about the same since 2000. And it found that the poor in much of Europe earn more than poor Americans.

So what does Canada have that the U.S. doesn’t have? Well, it has universal healthcare, for one thing. And more unions. And a better social safety net. Ditto with the European countries whose middle classes are better off than ours when you take into account government services.

The LIS researchers found that American families are paying a steep price for high and rising income inequality. Our growth is on par with many other countries, but our middle class and poor aren’t really getting much out of it.

Things have been going downhill for the middle class since 1990, the report shows. Remember anything that got started in those years? Ah, yes! Deregulation. Things were pretty prosperous under Clinton, but by the time you get to the Bush tax cuts, many of which are still with us, the middle class began to get squeezed. Those tax cuts sent more money to the wealthy and simultaneously stripped government investment on things the middle class needs, like public universities.

Conservatives will try to come up with all kinds of nonsense to explain what’s happening to the middle class, and we’ll probably be hearing the old magic mantras about small businesses and regulation. But it’s obvious looking at the historical data that regulation loosened under Bush, but the middle class fared worse. Right now, U.S. states that have pushed deregulation hard, such as those in the South, have been hit particularly hard by the recession. In the big picture, we have been cutting red tape and regulations for three decades now in America. Funny how that coincides with the bad news for the middle class.

We’ve also had massive losses in job in industries that used to flourish, partly because of not enough public investment, and partly because of low demand for goods and services caused by people not having enough money in their pockets to make purchases.

If we don’t want to become a country of fatcats and poor people, we will have to get serious about a couple of things. America has tolerated, and even encouraged, large-scale tax evasion. The big American multinationals like Apple have gotten away with taking advantage of every form of taxpayer investment in research and development, universities that train their workers, etc, and yet the company concocts elaborate schemes to avoid paying anything in taxes.

Obama will get blamed by right wingers, and while it's true that his policies have not done enough for the middle class or the poor and little to curb the growing concentration of wealth at the top, he didn’t create the financial crash and subsequent job losses which sent the 99 percent into a tailspin.

The GOP has to take much of the blame for the crazy idea that tax cuts are the only policy for growth and for its insistence on cutting investment on science, health and infrastructure, not to mention an educational debt story that is disastrous. But the Dems have been talking their austerity-lite nonsense for far too long, and they've been doing very little to help rein in the tax dodgers. There's plenty of blame to go around.

Lynn Parramore is an AlterNet senior editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of "Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture." She received her Ph.D. in English and cultural theory from NYU. She is the director of AlterNet's New Economic Dialogue Project. Follow her on Twitter @LynnParramore.

Thomas Piketty, professor at the Paris School of Economics, isn’t a household name, although that may change with the English-language publication of his magnificent, sweeping meditation on inequality, Capital in the Twenty-First Century. Yet his influence runs deep. It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.

The result has been a revolution in our understanding of long-term trends in inequality. Before this revolution, most discussions of economic disparity more or less ignored the very rich. Some economists (not to mention politicians) tried to shout down any mention of inequality at all: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution,” declared Robert Lucas Jr. of the University of Chicago, the most influential macroeconomist of his generation, in 2004. But even those willing to discuss inequality generally focused on the gap between the poor or the working class and the merely well-off, not the truly rich—on college graduates whose wage gains outpaced those of less-educated workers, or on the comparative good fortune of the top fifth of the population compared with the bottom four fifths, not on the rapidly rising incomes of executives and bankers.

It therefore came as a revelation when Piketty and his colleagues showed that incomes of the now famous “one percent,” and of even narrower groups, are actually the big story in rising inequality. And this discovery came with a second revelation: talk of a second Gilded Age, which might have seemed like hyperbole, was nothing of the kind. In America in particular the share of national income going to the top one percent has followed a great U-shaped arc. Before World War I the one percent received around a fifth of total income in both Britain and the United States. By 1950 that share had been cut by more than half. But since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.

Still, today’s economic elite is very different from that of the nineteenth century, isn’t it? Back then, great wealth tended to be inherited; aren’t today’s economic elite people who earned their position? Well, Piketty tells us that this isn’t as true as you think, and that in any case this state of affairs may prove no more durable than the middle-class society that flourished for a generation after World War II. The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to “patrimonial capitalism,” in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.

It’s a remarkable claim—and precisely because it’s so remarkable, it needs to be examined carefully and critically. Before I get into that, however, let me say right away that Piketty has written a truly superb book. It’s a work that melds grand historical sweep—when was the last time you heard an economist invoke Jane Austen and Balzac?—with painstaking data analysis. And even though Piketty mocks the economics profession for its “childish passion for mathematics,” underlying his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics.

1.

What do we know about economic inequality, and about when do we know it? Until the Piketty revolution swept through the field, most of what we knew about income and wealth inequality came from surveys, in which randomly chosen households are asked to fill in a questionnaire, and their answers are tallied up to produce a statistical portrait of the whole. The international gold standard for such surveys is the annual survey conducted once a year by the Census Bureau. The Federal Reserve also conducts a triennial survey of the distribution of wealth.

These two surveys are an essential guide to the changing shape of American society. Among other things, they have long pointed to a dramatic shift in the process of US economic growth, one that started around 1980. Before then, families at all levels saw their incomes grow more or less in tandem with the growth of the economy as a whole. After 1980, however, the lion’s share of gains went to the top end of the income distribution, with families in the bottom half lagging far behind.

Historically, other countries haven’t been equally good at keeping track of who gets what; but this situation has improved over time, in large part thanks to the efforts of the Luxembourg Income Study (with which I will soon be affiliated). And the growing availability of survey data that can be compared across nations has led to further important insights. In particular, we now know both that the United States has a much more unequal distribution of income than other advanced countries and that much of this difference in outcomes can be attributed directly to government action. European nations in general have highly unequal incomes from market activity, just like the United States, although possibly not to the same extent. But they do far more redistribution through taxes and transfers than America does, leading to much less inequality in disposable incomes.

Yet for all their usefulness, survey data have important limitations. They tend to undercount or miss entirely the income that accrues to the handful of individuals at the very top of the income scale. They also have limited historical depth. Even US survey data only take us to 1947.

Enter Piketty and his colleagues, who have turned to an entirely different source of information: tax records. This isn’t a new idea. Indeed, early analyses of income distribution relied on tax data because they had little else to go on. Piketty et al. have, however, found ways to merge tax data with other sources to produce information that crucially complements survey evidence. In particular, tax data tell us a great deal about the elite. And tax-based estimates can reach much further into the past: the United States has had an income tax since 1913, Britain since 1909. France, thanks to elaborate estate tax collection and record-keeping, has wealth data reaching back to the late eighteenth century.

Exploiting these data isn’t simple. But by using all the tricks of the trade, plus some educated guesswork, Piketty is able to produce a summary of the fall and rise of extreme inequality over the course of the past century. It looks like Table 1 on this page.

As I said, describing our current era as a new Gilded Age or Belle Époque isn’t hyperbole; it’s the simple truth. But how did this happen?

2.

Piketty throws down the intellectual gauntlet right away, with his book’s very title: Capital in the Twenty-First Century. Are economists still allowed to talk like that?

It’s not just the obvious allusion to Marx that makes this title so startling. By invoking capital right from the beginning, Piketty breaks ranks with most modern discussions of inequality, and hearkens back to an older tradition.

The general presumption of most inequality researchers has been that earned income, usually salaries, is where all the action is, and that income from capital is neither important nor interesting. Piketty shows, however, that even today income from capital, not earnings, predominates at the top of the income distribution. He also shows that in the past—during Europe’s Belle Époque and, to a lesser extent, America’s Gilded Age—unequal ownership of assets, not unequal pay, was the prime driver of income disparities. And he argues that we’re on our way back to that kind of society. Nor is this casual speculation on his part. For all that Capital in the Twenty-First Century is a work of principled empiricism, it is very much driven by a theoretical frame that attempts to unify discussion of economic growth and the distribution of both income and wealth. Basically, Piketty sees economic history as the story of a race between capital accumulation and other factors driving growth, mainly population growth and technological progress.

To be sure, this is a race that can have no permanent victor: over the very long run, the stock of capital and total income must grow at roughly the same rate. But one side or the other can pull ahead for decades at a time. On the eve of World War I, Europe had accumulated capital worth six or seven times national income. Over the next four decades, however, a combination of physical destruction and the diversion of savings into war efforts cut that ratio in half. Capital accumulation resumed after World War II, but this was a period of spectacular economic growth—the Trente Glorieuses, or “Glorious Thirty” years; so the ratio of capital to income remained low. Since the 1970s, however, slowing growth has meant a rising capital ratio, so capital and wealth have been trending steadily back toward Belle Époque levels. And this accumulation of capital, says Piketty, will eventually recreate Belle Époque–style inequality unless opposed by progressive taxation.

Why? It’s all about r versus g—the rate of return on capital versus the rate of economic growth.

Just about all economic models tell us that if g falls—which it has since 1970, a decline that is likely to continue due to slower growth in the working-age population and slower technological progress—r will fall too. But Piketty asserts that r will fall less than g. This doesn’t have to be true. However, if it’s sufficiently easy to replace workers with machines—if, to use the technical jargon, the elasticity of substitution between capital and labor is greater than one—slow growth, and the resulting rise in the ratio of capital to income, will indeed widen the gap between r and g. And Piketty argues that this is what the historical record shows will happen.

If he’s right, one immediate consequence will be a redistribution of income away from labor and toward holders of capital. The conventional wisdom has long been that we needn’t worry about that happening, that the shares of capital and labor respectively in total income are highly stable over time. Over the very long run, however, this hasn’t been true. In Britain, for example, capital’s share of income—whether in the form of corporate profits, dividends, rents, or sales of property, for example—fell from around 40 percent before World War I to barely 20 percent circa 1970, and has since bounced roughly halfway back. The historical arc is less clear-cut in the United States, but here, too, there is a redistribution in favor of capital underway. Notably, corporate profits have soared since the financial crisis began, while wages—including the wages of the highly educated—have stagnated.

A rising share of capital, in turn, directly increases inequality, because ownership of capital is always much more unequally distributed than labor income. But the effects don’t stop there, because when the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends toward dominance by inherited wealth.

Consider how this worked in Belle Époque Europe. At the time, owners of capital could expect to earn 4–5 percent on their investments, with minimal taxation; meanwhile economic growth was only around one percent. So wealthy individuals could easily reinvest enough of their income to ensure that their wealth and hence their incomes were growing faster than the economy, reinforcing their economic dominance, even while skimming enough off to live lives of great luxury.

And what happened when these wealthy individuals died? They passed their wealth on—again, with minimal taxation—to their heirs. Money passed on to the next generation accounted for 20 to 25 percent of annual income; the great bulk of wealth, around 90 percent, was inherited rather than saved out of earned income. And this inherited wealth was concentrated in the hands of a very small minority: in 1910 the richest one percent controlled 60 percent of the wealth in France; in Britain, 70 percent.

No wonder, then, that nineteenth-century novelists were obsessed with inheritance. Piketty discusses at length the lecture that the scoundrel Vautrin gives to Rastignac in Balzac’s Père Goriot, whose gist is that a most successful career could not possibly deliver more than a fraction of the wealth Rastignac could acquire at a stroke by marrying a rich man’s daughter. And it turns out that Vautrin was right: being in the top one percent of nineteenth-century heirs and simply living off your inherited wealth gave you around two and a half times the standard of living you could achieve by clawing your way into the top one percent of paid workers.

You might be tempted to say that modern society is nothing like that. In fact, however, both capital income and inherited wealth, though less important than they were in the Belle Époque, are still powerful drivers of inequality—and their importance is growing. In France, Piketty shows, the inherited share of total wealth dropped sharply during the era of wars and postwar fast growth; circa 1970 it was less than 50 percent. But it’s now back up to 70 percent, and rising. Correspondingly, there has been a fall and then a rise in the importance of inheritance in conferring elite status: the living standard of the top one percent of heirs fell below that of the top one percent of earners between 1910 and 1950, but began rising again after 1970. It’s not all the way back to Rasti-gnac levels, but once again it’s generally more valuable to have the right parents (or to marry into having the right in-laws) than to have the right job.

And this may only be the beginning. Figure 1 on this page shows Piketty’s estimates of global r and g over the long haul, suggesting that the era of equalization now lies behind us, and that the conditions are now ripe for the reestablishment of patrimonial capitalism.

Given this picture, why does inherited wealth play as small a part in today’s public discourse as it does? Piketty suggests that the very size of inherited fortunes in a way makes them invisible: “Wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities.” This is a very good point. But it’s surely not the whole explanation. For the fact is that the most conspicuous example of soaring inequality in today’s world—the rise of the very rich one percent in the Anglo-Saxon world, especially the United States—doesn’t have all that much to do with capital accumulation, at least so far. It has more to do with remarkably high compensation and incomes.

3.

Capital in the Twenty-First Century is, as I hope I’ve made clear, an awesome work. At a time when the concentration of wealth and income in the hands of a few has resurfaced as a central political issue, Piketty doesn’t just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.

And yet there is one thing that slightly detracts from the achievement—a sort of intellectual sleight of hand, albeit one that doesn’t actually involve any deception or malfeasance on Piketty’s part. Still, here it is: the main reason there has been a hankering for a book like this is the rise, not just of the one percent, but specifically of the American one percent. Yet that rise, it turns out, has happened for reasons that lie beyond the scope of Piketty’s grand thesis.

Piketty is, of course, too good and too honest an economist to try to gloss over inconvenient facts. “US inequality in 2010,” he declares, “is quantitatively as extreme as in old Europe in the first decade of the twentieth century, but the structure of that inequality is rather clearly different.” Indeed, what we have seen in America and are starting to see elsewhere is something “radically new”—the rise of “supersalaries.”

Capital still matters; at the very highest reaches of society, income from capital still exceeds income from wages, salaries, and bonuses. Piketty estimates that the increased inequality of capital income accounts for about a third of the overall rise in US inequality. But wage income at the top has also surged. Real wages for most US workers have increased little if at all since the early 1970s, but wages for the top one percent of earners have risen 165 percent, and wages for the top 0.1 percent have risen 362 percent. If Rastignac were alive today, Vautrin might concede that he could in fact do as well by becoming a hedge fund manager as he could by marrying wealth.

What explains this dramatic rise in earnings inequality, with the lion’s share of the gains going to people at the very top? Some US economists suggest that it’s driven by changes in technology. In a famous 1981 paper titled “The Economics of Superstars,” the Chicago economist Sherwin Rosen argued that modern communications technology, by extending the reach of talented individuals, was creating winner-take-all markets in which a handful of exceptional individuals reap huge rewards, even if they’re only modestly better at what they do than far less well paid rivals.

Piketty is unconvinced. As he notes, conservative economists love to talk about the high pay of performers of one kind or another, such as movie and sports stars, as a way of suggesting that high incomes really are deserved. But such people actually make up only a tiny fraction of the earnings elite. What one finds instead is mainly executives of one sort or another—people whose performance is, in fact, quite hard to assess or give a monetary value to.

Who determines what a corporate CEO is worth? Well, there’s normally a compensation committee, appointed by the CEO himself. In effect, Piketty argues, high-level executives set their own pay, constrained by social norms rather than any sort of market discipline. And he attributes skyrocketing pay at the top to an erosion of these norms. In effect, he attributes soaring wage incomes at the top to social and political rather than strictly economic forces.

Now, to be fair, he then advances a possible economic analysis of changing norms, arguing that falling tax rates for the rich have in effect emboldened the earnings elite. When a top manager could expect to keep only a small fraction of the income he might get by flouting social norms and extracting a very large salary, he might have decided that the opprobrium wasn’t worth it. Cut his marginal tax rate drastically, and he may behave differently. And as more and more of the supersalaried flout the norms, the norms themselves will change.

There’s a lot to be said for this diagnosis, but it clearly lacks the rigor and universality of Piketty’s analysis of the distribution of and returns to wealth. Also, I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can, after a fashion, be evaluated. I didn’t mention hedge fund managers idly: such people are paid based on their ability to attract clients and achieve investment returns. You can question the social value of modern finance, but the Gordon Gekkos out there are clearly good at something, and their rise can’t be attributed solely to power relations, although I guess you could argue that willingness to engage in morally dubious wheeling and dealing, like willingness to flout pay norms, is encouraged by low marginal tax rates.

Overall, I’m more or less persuaded by Piketty’s explanation of the surge in wage inequality, though his failure to include deregulation is a significant disappointment. But as I said, his analysis here lacks the rigor of his capital analysis, not to mention its sheer, exhilarating intellectual elegance.

Yet we shouldn’t overreact to this. Even if the surge in US inequality to date has been driven mainly by wage income, capital has nonetheless been significant too. And in any case, the story looking forward is likely to be quite different. The current generation of the very rich in America may consist largely of executives rather than rentiers, people who live off accumulated capital, but these executives have heirs. And America two decades from now could be a rentier-dominated society even more unequal than Belle Époque Europe.

But this doesn’t have to happen.

4.

At times, Piketty almost seems to offer a deterministic view of history, in which everything flows from the rates of population growth and technological progress. In reality, however, Capital in the Twenty-First Century makes it clear that public policy can make an enormous difference, that even if the underlying economic conditions point toward extreme inequality, what Piketty calls “a drift toward oligarchy” can be halted and even reversed if the body politic so chooses.

The key point is that when we make the crucial comparison between the rate of return on wealth and the rate of economic growth, what matters is the after-tax return on wealth. So progressive taxation—in particular taxation of wealth and inheritance—can be a powerful force limiting inequality. Indeed, Piketty concludes his masterwork with a plea for just such a form of taxation. Unfortunately, the history covered in his own book does not encourage optimism.

It’s true that during much of the twentieth century strongly progressive taxation did indeed help reduce the concentration of income and wealth, and you might imagine that high taxation at the top is the natural political outcome when democracy confronts high inequality. Piketty, however, rejects this conclusion; the triumph of progressive taxation during the twentieth century, he contends, was “an ephemeral product of chaos.” Absent the wars and upheavals of Europe’s modern Thirty Years’ War, he suggests, nothing of the kind would have happened.

As evidence, he offers the example of France’s Third Republic. The Republic’s official ideology was highly egalitarian. Yet wealth and income were nearly as concentrated, economic privilege almost as dominated by inheritance, as they were in the aristocratic constitutional monarchy across the English Channel. And public policy did almost nothing to oppose the economic domination by rentiers: estate taxes, in particular, were almost laughably low.

Why didn’t the universally enfranchised citizens of France vote in politicians who would take on the rentier class? Well, then as now great wealth purchased great influence—not just over policies, but over public discourse. Upton Sinclair famously declared that “it is difficult to get a man to understand something when his salary depends on his not understanding it.” Piketty, looking at his own nation’s history, arrives at a similar observation: “The experience of France in the Belle Époque proves, if proof were needed, that no hypocrisy is too great when economic and financial elites are obliged to defend their interest.”

The same phenomenon is visible today. In fact, a curious aspect of the American scene is that the politics of inequality seem if anything to be running ahead of the reality. As we’ve seen, at this point the US economic elite owes its status mainly to wages rather than capital income. Nonetheless, conservative economic rhetoric already emphasizes and celebrates capital rather than labor—“job creators,” not workers.

In 2012 Eric Cantor, the House majority leader, chose to mark Labor Day—Labor Day!—with a tweet honoring business owners:

Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.

Perhaps chastened by the reaction, he reportedly felt the need to remind his colleagues at a subsequent GOP retreat that most people don’t own their own businesses—but this in itself shows how thoroughly the party identifies itself with capital to the virtual exclusion of labor.

Nor is this orientation toward capital just rhetorical. Tax burdens on high-income Americans have fallen across the board since the 1970s, but the biggest reductions have come on capital income—including a sharp fall in corporate taxes, which indirectly benefits stockholders—and inheritance. Sometimes it seems as if a substantial part of our political class is actively working to restore Piketty’s patrimonial capitalism. And if you look at the sources of political donations, many of which come from wealthy families, this possibility is a lot less outlandish than it might seem.

Piketty ends Capital in the Twenty-First Century with a call to arms—a call, in particular, for wealth taxes, global if possible, to restrain the growing power of inherited wealth. It’s easy to be cynical about the prospects for anything of the kind. But surely Piketty’s masterly diagnosis of where we are and where we’re heading makes such a thing considerably more likely. So Capital in the Twenty-First Century is an extremely important book on all fronts. Piketty has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.

How government policies worsen the nation’s income and wealth disparities comes into sharp focus in a new government report on capital gains. The short story: Investing is gaining and work declining as sources of income.

Capital gains come from selling assets such as stocks, real estate and businesses. Property owned for more than a year is taxed at lower rates than wages and in some cases is tax-free.

Although capital gains are growing — an indication that national wealth is growing — far fewer capital gains are going to the vast majority, while those at the absolute top of the economy are enjoying vastly more. This trend, as well as other official data, suggests that wealth is piling up at the top and that a narrowing number of Americans are wealth holders.

Larger pie, smaller slice

These findings emerge from a new report by the Statistics of Income branch of the IRS that examined a large set of taxpayers over nine years. I have reanalyzed the data, adjusted for inflation, and then compared similar, but not identical, data for 2012, the year with the latest available numbers.

To understand recent changes in capital gains, think of a pie made from the money received when stocks and other assets are sold for a profit. Call it a capital gains pie.

Now imagine we set down the 1999 and 2007 capital gains pies side by side to see how they were sliced up and handed out to four Americans sitting at the dinner table, who represent four different income classes.

The good news is that the 2007 pie is 40 percent larger than the 1999 pie. But it’s also important to consider the size of the various slices.

The smallest slice from both pies goes to the vast majority of Americans, roughly the bottom 90 percent, whose total income in both years was less than $100,000. In 1999 they got 13.9 percent of the pie, but in 2007 just 5.3 percent. That was such a dramatic decrease that even though the pie was much larger in 2007, that year’s pie slice contained only slightly more than half the dollars of the 1999 slice, $91 million reduced to $49 million. In other words, the bottom 90 percent took a huge capital gains hit, despite the overall increase in wealth.

Next are the slices going to the roughly one in eight Americans making between $100,000 and $1 million. Their slice shrank from 35.5 percent to 28.6 percent, but the dollars received grew by 13 percent, because the pie got bigger.

Next come the small number of Americans, roughly one in 400, who made between $1 million and $10 million in both years. Their slice of pie also shrank, from just over 28 percent to just under 24 percent. But the total dollars in their slice went up by 17 percent.

And what of the top group, the slightly more than 18,000 households with total income of $10 million or more in both years? Their slice doubled to more than 42 percent of the pie. And because the pie was also bigger, their cash from capital gains in 2007 was 2.6 times greater than in 1999.

We are not getting laws that support the vast majority of Americans because members of Congress must raise money from wealthy donors, who in return for their largesse want policies bent in their favor.

So in 1999 the already very rich made almost $146 billion from capital gains, but eight years later they made more than $388 billion.

Wealth was already highly concentrated in America before the 2008 financial crisis, especially financial wealth — stocks, bonds, the cash value of life insurance policies and cash. The Great Recession was a disaster for those who were forced to sell assets due to unemployment, but a grand opportunity for those with the money to buy stocks and other assets at fire sale prices. Since Barack Obama took office five years ago the stock market has more than doubled, while average incomes have fallen.

The role of policy

So are these trends due simply to the luck of the free market? No, in fact, government polices have played an important role in generating these grossly unequal outcomes.

First, tax cuts: One in 1,000 Americans, roughly those making more than $2 million annually, enjoyed 12.5 percent of the tax cuts championed by President George W. Bush. When that’s combined with previous tax cuts under Presidents Johnson, Reagan and Clinton, the top 400 taxpayers in 2006 enjoyed a 60 percent reduction in their total tax burden compared with 1961, my analysis of a different set of IRS statistics shows.

Second, wages hardly grew during the years 1999 to 2007 — or since. Adjusted for inflation, the average wage reported on tax returns in 2007 was only 1.7 percent more than in 1999. That works out to an average annual pay increase of a nickel an hour, not that anyone would notice such a tiny sum — less than $2 per week.

In the next five years, to 2012, the average wages on tax returns remained essentially flat, up $55 compared with 2007. That’s the equivalent of getting a raise each year of about half a penny per hour — less than 20 cents per week.

When wages do not grow but the cost of living rises, people have a reduced capacity to save and invest. Those among the less well off who had saved only to join the ranks of the long-term unemployed have had to sell some or all of their investments to those who are better off.

Among the vast majority a dwindling share of people report any capital gains. In 1999 it was more than 9 percent of taxpayers, but in 2012 it was under 5 percent.

The decimation of unions, enabled by government policies that make organizing extremely difficult, is a major factor in stagnant wages. Moving factory work offshore has added to the downward pressure on wages. Now some white-collar workers are feeling the effects, since almost any job done at a computer can be moved to a low-wage country such as India.

Third, the massive growth of subsidies to business tends to increase the value of companies that get such deals; to enable profit taking, dividends and oversized compensation; to weaken competitors not afforded these gifts (perhaps because of lack of lobbying power and campaign contributions); and to burden taxpayers generally. Many of these subsidies come from state and local governments, virtually all of which inordinately burden those down the income ladder more than the well off, because of regressive levies such as sales taxes.

Holding down wages has increased corporate profits, which have soared to heights never before seen, at least since the government started issuing consistent statistical measures in the late 1920s.

For the bottom 90 percent, roughly the same group making under $100,000 that the IRS studied, total income in 2012 was $31,000 in 2012, down almost $5,400 — or about 15 percent — compared with 1999, analysis of tax data by economists Emmanuel Saez and Thomas Piketty shows.

However, incomes soared for the top 1 percent of the top 1 percent — approximately 16,000 households, or a slightly smaller group than the 18,000 high earners in the IRS study. This group averaged almost $31 million in 2012, up $5 million compared with 1999.

In a representative democracy we choose our leaders, who in turn set policy. A major reason we are not getting laws and regulations that support the vast majority of Americans is that members of Congress and candidates for President must raise money from wealthy donors, who in return for their largesse want policies bent in their favor.

The Supreme Court’s ruling yesterday in McCutcheon v. FEC is probably not the last to overturn limits on campaign giving that were adopted after the Watergate scandal revealed the corrupting influence of big money. As big money’s influence grows due to the high court’s decision we can expect those slices of pie to be recut again and again with fatter slices for the political donor class and thinner slices for everyone else.

April 05, 2014

Every year I ask my class on “Wealth and Poverty” to play a simple game. I have them split up into pairs, and imagine I’m giving one of them $1,000. They can keep some of the money only on condition they reach a deal with their partner on how it’s to be divided up between them. I explain they’re strangers who will never see one other again, can only make one offer and respond with one acceptance (or decline), and can only communicate by the initial recipient writing on a piece of paper how much he’ll share with the other, who must then either accept (writing “deal” on the paper) or decline (“no deal”).

You might think many initial recipients of the imaginary $1,000 would offer $1 or even less, which their partner would gladly accept. After all, even one dollar is better than ending up with nothing at all.

But that’s not what happens. Most of the $1,000 recipients are far more generous, offering their partners at least $250. And most of partners decline any offer under $250, even though “no deal” means neither of them will get to keep anything.

This game, or variations of it, have been played by social scientists thousands of times with different groups and pairings, with surprisingly similar results.

A far bigger version of the game is now being played on the national stage. But it’s for real — as a relative handful of Americans receive ever bigger slices of the total national income while most average Americans, working harder than ever, receive smaller ones. And just as in the simulations, the losers are starting to say “no deal.”

According to polls, they’ve said no deal to the pending Trans Pacific Trade Agreement, for example, and Congress is on the way to killing it.

It’s true that history and policy point to overall benefits from expanded trade because all of us gain access to cheaper goods and services. But in recent years the biggest gains from trade have gone to investors and executives while the burdens have fallen disproportionately on those in the middle and below who have lost good-paying jobs.

By the same token, most Americans are saying “no deal” to further tax cuts for the wealthy and corporations. In fact, some are now voting to raise taxes on the rich in order to pay for such things as better schools, as evidenced by the election of Bill de Blasio as mayor of New York.

Conservatives say higher taxes on the rich will slow economic growth. But even if this argument contains a grain of truth, it’s a non-starter as long as 95 percent of the gains from growth continue to go to the top 1 percent – as they have since the start of the recovery in 2009.

Why would people turn down a deal that made them better off simply because it made someone else far, far better off?

Some might call this attitude envy or spite. That’s the conclusion of Arthur Brooks, president of the American Enterprise Institute, in a recent oped column for the New York Times. But he’s dead wrong.

It’s true that people sometimes feel worse off when others do better. There’s an old Russian story about a suffering peasant whose neighbor is rich and well-connected. In time, the rich neighbor obtains a cow, something the peasant could never afford. The peasant prays to God for help. When God asks the peasant what he wants God to do, the peasant replies, “Kill the cow.”

But Americans have never been prone to “kill the cow” type envy. When our neighbor gets the equivalent of new cow (or new car), we want one, too.

Yet we are sensitive to perceived unfairness. When I ask those of my students who refuse to accept even $200 in the distribution game why they did so, they rarely mention feelings of envy or spite. They talk instead about unfairness. “Why should she get so much?” they ask. “It’s unfair.”

Remember, I gave out the $1,000 arbitrarily. The initial recipients didn’t have to work for it or be outstanding in any way.

When a game seems rigged, losers may be willing to sacrifice some gains in order to prevent winners from walking away with far more — a result that might feel fundamentally unfair.

To many Americans, the U.S. economy of recent years has become a vast casino in which too many decks are stacked and too many dice are loaded. I hear it all the time: The titans of Wall Street made unfathomable amounts gambling with our money, and when their bets went bad in 2008 we had to bail them out. Yet although millions of Americans are still underwater and many remain unemployed, not a single top Wall Street banker has been indicted. In fact, they’re making more money now than ever before.

Top hedge-fund managers pocketed more than a billion dollars each last year, and the stock market is higher than it was before the crash. But the typical American home is worth less than before, and most Americans can’t save a thing. CEOs are now earning more than 300 times the pay of the typical worker yet the most workers are earning less, and many are barely holding on.

In 2001, a Gallup poll found 76 percent of Americans satisfied with opportunities to get ahead by working hard, and only 22 percent were dissatisfied. But since then, the apparent arbitrariness and unfairness of the economy have taken a toll. Satisfaction has steadily declined and dissatisfaction increased. Only 54 percent are now satisfied, 45 percent dissatisfied.

According to Pew, the percentage of Americans who feel most people who want to get ahead can do so through hard work has dropped by 14 points since about 2000.

Another related explanation I get from students who refuse $200 or more in the distribution game: They worry that if the other guy ends up with most of the money, he’ll also end up with most of the power. That will rig the game even more. So they’re willing to sacrifice some gain in order to avoid a steadily more lopsided and ever more corrupt politics.

Here again, the evidence is all around us. Big money had already started inundating our democracy before “Citizens United vs. Federal Election Commission” opened the sluice gates, but now our democracy is drowning. Only the terminally naive would believe this money is intended to foster the public interest.

What to do? Improving our schools is critically important. Making work pay by raising the minimum wage and expanding the Earned Income Tax Credit would also be helpful.

But these are only a start. In order to ensure that future productivity gains don’t go overwhelmingly to a small sliver at the top, we’ll need a mechanism to give the middle class and the poor a share in future growth.

One possibility: A trust fund for every child at birth, composed of an index of stocks and bonds whose value is inversely related to family income, which becomes available to them when they turn eighteen. Through the magic of compounded interest, this could be a considerable sum. The funds would be financed by a small surtax on capital gains and a tax on all financial transactions.

We must also get big money out of politics — reversing “Citizens United” by constitutional amendment if necessary, financing campaigns by matching the contributions of small donors with public dollars, and requiring full disclosure of everyone and every corporation contributing to (or against) a candidate.

If America’s distributional game continues to create a few big winners and many who consider themselves losers by comparison, the losers will try to stop the game — not out of envy but out of a deep-seated sense of unfairness and a fear of unchecked power and privilege. Then we all lose.

March 29, 2014

Paul Krugman says the inequality issue in America resonates today as it did in the past when we consider all the dangers it poses to democracy.

By Paul Krugman | March 28, 2014 | Updated: March 28, 2014 8:08pm

As inequality has become an increasingly prominent issue in American discourse, there has been furious pushback from the right. Some conservatives argue that focusing on inequality is unwise, that taxing high incomes will cripple economic growth. Some argue that it's unfair, that people should be allowed to keep what they earn. And some argue that it's un-American - that we've always celebrated those who achieve wealth, and that it violates our national tradition to suggest that some people control too large a share of the wealth.

And they're right. No true American would say this: "The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power," and follow that statement with a call for "a graduated inheritance tax on big fortunes … increasing rapidly in amount with the size of the estate."

The truth is that, in the early 20th century, many leading Americans warned about the dangers of extreme wealth concentration and urged that tax policy be used to limit the growth of great fortunes. Here's another example: In 1919, the great economist Irving Fisher - whose theory of "debt deflation," by the way, is essential in understanding our current economic troubles - devoted his presidential address to the American Economic Association largely to warning against the effects of "an undemocratic distribution of wealth." And he spoke favorably of proposals to limit inherited wealth through heavy taxation of estates.

Nor was the notion of limiting the concentration of wealth, especially inherited wealth, just talk. In his landmark book, "Capital in the Twenty-First Century," the economist Thomas Piketty points out that America, which introduced an income tax in 1913 and an inheritance tax in 1916, led the way in the rise of progressive taxation, that it was "far out in front" of Europe. Piketty goes so far as to say that "confiscatory taxation of excessive incomes" - that is, taxation whose goal was to reduce income and wealth disparities, rather than to raise money - was an "American invention."

And this invention had deep historical roots in the Jeffersonian vision of an egalitarian society of small farmers. Back when Teddy Roosevelt gave his speech, many thoughtful Americans realized not just that extreme inequality was making nonsense of that vision, but that America was in danger of turning into a society dominated by hereditary wealth - that the New World was at risk of turning into Old Europe. And they were forthright in arguing that public policy should seek to limit inequality for political as well as economic reasons, that great wealth posed a danger to democracy.

So how did such views not only get pushed out of the mainstream, but come to be considered illegitimate?

Consider how inequality and taxes on top incomes were treated in the 2012 election. Republicans pushed the line that President Barack Obama was hostile to the rich. "If one's priority is to punish highly successful people, then vote for the Democrats," Mitt Romney said. Democrats vehemently (and truthfully) denied the charge. Yet Romney was, in effect, accusing Obama of thinking like Teddy Roosevelt. How did that become an unforgivable political sin?

You sometimes hear the argument that concentrated wealth is no longer an important issue, because the big winners in today's economy are self-made men who owe their position at the top of the ladder to earned income, not inheritance.

But that view is a generation out of date. New work by the economists Emmanuel Saez and Gabriel Zucman finds that the share of wealth held at the very top - the richest 0.1 percent of the population - has doubled since the 1980s and is now as high as it was when Teddy Roosevelt and Irving Fisher issued their warnings.

We don't know how much of that wealth is inherited. But it's interesting to look at the Forbes list of the wealthiest Americans. By my rough count, about a third of the top 50 inherited large fortunes. Another third are 65 or older, so they will probably be leaving large fortunes to their heirs.

We aren't yet a society with a hereditary aristocracy of wealth, but, if nothing changes, we'll become that kind of society over the next couple of decades.

In short, the demonization of anyone who talks about the dangers of concentrated wealth is based on a misreading of both the past and the present. Such talk isn't un-American; it's very much in the American tradition. And it's not at all irrelevant to the modern world.

February 22, 2014

New report shows that no matter which state you live in, the 1% are making even more gains as the rest fall back

- Jon Queally, staff writer

From 1979 to 2011, the average income of the bottom 99 percent of U.S. taxpayers grew by 18.9 percent, while the average income of the top 1 percent grew over 10 times as much—by 200.5 percent. (Image: Common Dreams)Over the last three decades the wealth of the nation's very richest 1% has grown ten times that of the average worker and over that time period that same tiny elite has captured more than half of the entire income increases, leaving the bottom 99% to divide the remaining gains.

This is all based on a new state-level study, The Increasingly Unequal States of America: Income Inequality by State, which looks at how inequality has seized hold of the national economy both in the generation leading up to the great recession of 2008 and in the several years following where a so-called "recovery" was experienced by the financial elite while the majority of U.S. population continues to claw its way back.

“The levels of inequality we are seeing across the country provide more proof that the economy is not working for the vast majority of Americans and has not for decades,” said Mark Price, an economist at the Keystone Research Center, who co-authored the report on behalf of the Economic Analysis and Research Network (EARN). “It is unconscionable that most of America’s families have shared in so little of the country’s prosperity over the last several decades.”

Check out the interactive state-by-state map on inequality generated by the study's authors.

Numerous studies in recent years have exposed the persistent pattern of income and wealth inequality in the United States, but as Price's co-author Estelle Sommeiller explains, “our study shows that this one percent economy is not just a national story but is evident in every state, and every region.”

Though some states show higher levels of inequality, the pattern nationally is firm. What is also made clear by the study is the degree to which specific policies--including the writing of tax law, the climate set for labor conditions, and the setting of wages--have all contributed directly to this pattern where those at the very top benefit from a growing economy and those at the bottom receive increasingly less reward for their hard work.

“It’s clear that policies were set to favor the one percent and those policies can, and should, be changed,” Doug Hall, director of the EARN program said. “In order to have widespread income growth, bold policies need to be enacted to increase the minimum wage, create low levels of unemployment, and strengthen the rights of workers to organize.”

Among the report's key findings:

In four states (Nevada, Wyoming, Michigan, and Alaska), only the top 1 percent experienced rising incomes between 1979 and 2007, and the average income of the bottom 99 percent fell.

In another 15 states the top 1 percent captured between half and 84 percent of all income growth between 1979 and 2007. Those states are Arizona (where 84.2 percent of all income growth was captured by the top 1 percent), Oregon (81.8 percent), New Mexico (72.6 percent), Hawaii (70.9 percent), Florida (68.9 percent), New York (67.6 percent), Illinois (64.9 percent), Connecticut (63.9 percent), California (62.4 percent), Washington (59.1 percent), Texas (55.3 percent), Montana (55.2 percent), Utah (54.1 percent), South Carolina (54.0 percent), and West Virginia (53.3 percent).

In the 10 states in which the top 1 percent captured the smallest share of income growth, the top 1 percent captured between about a quarter and just over a third of all income growth. Those states are Louisiana (where 25.6 percent of all income growth was captured by the top 1 percent), Virginia (29.5 percent), Iowa (29.8 percent), Mississippi (29.8 percent), Maine (30.5 percent), Rhode Island (32.6 percent), Nebraska (33.5 percent), Maryland (33.6 percent), Arkansas (34.0 percent), and North Dakota (34.2 percent).

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According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.

That’s the highest price paid for a startup in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.

(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)

Given that gargantuan amount, you might think Whatsapp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.

Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.

It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.

The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.

Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)

How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it’s already achieved, even a small fee generates big bucks. And if it gets into advertising it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world’s population.

The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.

And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.

But we’re not getting more jobs.

In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).

Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.

Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.

February 07, 2014

Under a headline “Obama Moves to the Right in a Partisan War of Words,” The New York Times’ Jackie Calmes notes Democratic operatives have been hitting back hard against the President or any other Democratic politician talking about income inequality, preferring that the Democrats talk about equality of opportunity instead.

"However salient reducing inequality may be," writes Democratic pollster Mark Mellman, “it is demonstrably less important to voters than any other number of priorities, incudlng reducing poverty.”

The President may be listening. Wags noticed that in his State of the Union, Obama spoke ten times of increasing “opportunity” and only twice of income inequality, while in a December speech he spoke of income inequality two dozen times. But the President and other Democrats — and even Republicans, for that matter — should focus on the facts, not the polls, and not try to dress up what’s been happening with more soothing words and phrases.

In fact, America’s savage inequality is the main reason equal opportunity is fading and poverty is growing. Since the “recovery” began, 95% of the gains have gone to the top 1 percent, and median incomes have dropped. This is a continuation of the trend we’ve seen for decades. As a result:

(1) The sinking middle class no longer has enough purchasing power to keep the economy growing and creating sufficient jobs. The share of working-age Americans still in the labor force is the lowest in more than thirty years.

(3) Meanwhile, America’s rich are accumulating not just more of the country’s total income and wealth, but also the political power that accompanies money. And they’re using that power to reduce their own taxes, and get corporate welfare (subsidies, bailouts, tax cuts) for their businesses.

All this means less equality of opportunity in America. Obama was correct in December when he called widening inequality “the defining challenge of our time.” He mustn’t back down now even if Democratic pollsters tell him to. If we’re ever to reverse this noxious trend, Americans have to hear the truth.

January 19, 2014

Occasionally David Brooks, who personifies the oxymoron “conservative thinker” better than anyone I know, displays such profound ignorance that a rejoinder is necessary lest his illogic permanently pollute public debate. Such is the case with his New York Times column last Friday, arguing that we should be focusing on the “interrelated social problems of the poor” rather than on inequality, and that the two are fundamentally distinct.

Baloney.

First, when almost all the gains from growth go to the top, as they have for the last thirty years, the middle class doesn’t have the purchasing power necessary for buoyant growth.

Once the middle class has exhausted all its coping mechanisms – wives and mothers surging into paid work (as they did in the 1970s and 1980s), longer working hours (which characterized the 1990s), and deep indebtedness (2002 to 2008) – the inevitable result is fewer jobs and slow growth, as we continue to experience.

Few jobs and slow growth hit the poor especially hard because they’re the first to be fired, last to be hired, and most likely to bear the brunt of declining wages and benefits.

Second, when the middle class is stressed, it has a harder time being generous to those in need. The “interrelated social problems” of the poor presumably will require some money, but the fiscal cupboard is bare. And because the middle class is so financially insecure, it doesn’t want to, nor does it feel it can afford to, pay more in taxes.

Third, America’s shrinking middle class also hobbles upward mobility. Not only is there less money for good schools, job training, and social services, but the poor face a more difficult challenge moving upward because the income ladder is far longer than it used to be, and its middle rungs have disappeared.

Brooks also argues that we should not be talking about unequal political power, because such utterances cause divisiveness and make it harder to reach political consensus over what to do for the poor.

Hogwash. The concentration of power at the top — which flows largely from the concentration of income and wealth there — has prevented Washington from dealing with the problems of the poor and the middle class.

To the contrary, as wealth has accumulated at the top, Washington has reduced taxes on the wealthy, expanded tax loopholes that disproportionately benefit the rich, deregulated Wall Street, and provided ever larger subsidies, bailouts, and tax breaks for large corporations. The only things that have trickled down to the middle and poor besides fewer jobs and smaller paychecks are public services that are increasingly inadequate because they’re starved for money.

Unequal political power is the endgame of widening inequality — its most noxious and nefarious consequence, and the most fundamental threat to our democracy. Big money has now all but engulfed Washington and many state capitals — drowning out the voices of average Americans, filling the campaign chests of candidates who will do their bidding, financing attacks on organized labor, and bankrolling a vast empire of right-wing think-tanks and publicists that fill the airwaves with half-truths and distortions.

That David Brooks, among the most thoughtful of all conservative pundits, doesn’t see or acknowledge any of this is a sign of how far the right has moved away from the reality most Americans live in every day.

December 25, 2013

The Federal Reserve and the Bank of England are encouraging food speculation shows clearly how both America’s and Britain’s monetary policies are engineered to work against the interests of the majority, not only at home but internationally.

These are the same criticisms people have been making, with growing clamor, since the Fed initiated its QE spending in 2010. Since the financial crash, both the Fed and Bank of England have been running these stimulus programs — a "money for nothing" technique of buying bonds from toxic banks. As Dyson mentions, the U.K. has created an extra £375 billion for big banks through the spending.

Meanwhile, Professor David McNally of York University Toronto calculates the Fed has pumped an equivalent amount, $600 billion, into Wall Street banks in the course of QE1, QE2 and QE3. He asserts this “hot money” is funding speculators to buy currencies, commodities and assets with the result that it's driving up currencies such as Brazil’s real, funding lands grabs across Africa and Asia, and making food prices soar.

A deeper look at the Fed’s impact on food prices, in fact, illuminates how the private central bank is working as an engine to fund rising inequality worldwide.

To appreciate the consequences that food speculation has had on the majority of the globe's population, I asked Miriam Ross, media officer for WDM in London, to set out its impact. “Speculation has been a major contributor to the sharp spikes in global food prices," Ross said. "When prices of staple foods rise suddenly, everyone is affected. Here in the U.K., for example, prices rose by 32% [between] 2007 to 2012.”

Ross went on, “With incomes failing to keep pace, many people have felt the pinch. But in poor countries, where many people typically spend 50 to 90% of their incomes on food compared to an average of 10 to 15% in rich countries, price spikes can spell disaster. In the last six months of 2010 alone, 44 million more people were pushed into extreme poverty by rising food prices.”

“This does not just mean peoples’ lives are devastated due to a hunger and malnutrition. It causes people to sell off possessions including cattle, take their children out of school, or cut out spending on health care,” she added, and proposed that reducing speculation should be an easy goal for the public to embrace.

“Regulation to curb speculation is on the table on both sides of the Atlantic. Whether or not regulators seize the opportunity to rein in the speculators depends on whether they prioritize the profits of investment banks or the fundamental right of people to food.”

That the Federal Reserve and the Bank of England are encouraging food speculation — and are responsible for its disastrous results — shows clearly how both America's and Britain's monetary policies are engineered to work against the interests of the majority, not only at home but internationally.

An alternative strategy, according to groups like Positive Money, is for the nation's central bank to strategically stimulate parts of the economy and help produce the things that people actually need, like low-carbon emitting forms of transportation, manufacturing, energy production, and so on. If the Fed were federalized, restructured as a public force for investing in the public good, not just Americans but the world's population would have a more hopeful future before it.

As well as being involved with Occupy, Steve is currently writing a PhD criticising Neoliberalism from an indigenous perspective. From Southampton, Steve has also provided legal support to Dan Ashman as part of the OccupyLSX legal case—for which judgement will be delivered sometime after Jan. 11.

December 24, 2013

Last Friday, the Center for American Progress, the center-left think tank founded by Bill Clinton’s former chief of staff John Podesta, held a conference to launch its new Washington Center for Equitable Growth. The new center, which is being funded by the Sandler Foundation, will finance academic research into the causes and effects of inequality, broadly conceived, and function as a hub for policy makers, journalists, and others involved in the subject.

It was an interesting morning, featuring some of the top researchers in the field, and I moderated one of the panel sessions. In some brief opening remarks, I noted that Washington has long had a number of centers promoting inequitable growth, so it only seems fair to have one supporting equitable growth. And having learned a good deal from the panelists, I thought it might be worthwhile to share some of the charts they brought with them. Taken together, the pictures convey a good deal of what we know about inequality. They also raise important questions about the channels through which it impacts economic growth and human development.

I’ll start with an updated chart from Emmanuel Saez, of Berkeley, which shows the share of pre-tax income enjoyed by the top one per cent of earners over the period from 1913 to 2012. The data, which comes from the Internal Revenue Service, is for market income: it includes realized capital gains but excludes government transfers.

The U shape of the chart should by now be familiar. After rising in the Roaring Twenties, the income share of the one per cent fell sharply in the postwar period. Since the late nineteen-seventies, it has been climbing again, albeit in a somewhat zig-zag fashion. The top earners’ share of overall pre-tax income peaked at about twenty-four per cent in 2007, fell back during the Great Recession, and then recovered strongly. In 2012, it was about twenty-three per cent.

How have the folks outside the one per cent been faring? A second chart from Saez tells us the answer. Going back a century, the light line shows the path of inflation-adjusted pre-tax incomes for families in the bottom ninety-nine per cent. The dark line shows how families in the top one per cent have been doing.

Once again, the long-term trends are clear. Between the start of the Second World War and the first oil-price shock of 1973, families in the bottom ninety-nine per cent saw their incomes rise sharply. With the exception of the late nineteen-nineties, the past forty years have been marked by slow growth. For those at the top of the income distribution, recent history has been very different. After growing modestly in the postwar decades, the incomes of families in the top one per cent took off in the late nineteen-seventies, and have been zig-zagging upward since then.

The United States is a very unequal country. But how much does it differ from other industrialized countries? And what difference do taxes and government transfers make? (If the tax and benefits system is ameliorating inequality that the market generates, it might change the way we think about the issue.) Presenting data from the invaluable Luxembourg Income Study, of which she is a director, Janet Gornick, a political scientist at the CUNY Graduate Center, provided answers to both of these questions.

The third chart shows a measure of pre-tax inequality and inequality after taxes and transfers for twenty-two advanced countries. The measure used is a Gini coefficient, which captures inequality on a scale of zero to one, where zero is perfect equality (everybody receives the same income) and one is perfect inequality (the richest person gets all the income). The light lines on the bar chart show pre-tax inequality. The dark lines show inequality after taxes and transfers.

One striking thing about this chart is that the U.S. figure for pre-tax inequality (0.57) doesn’t really stand out. In fact, according to this metric, the United States has pretty much the same level of pre-tax inequality as Sweden and Denmark, two countries that are usually thought of as highly egalitarian. The United Kingdom, Ireland, and several other countries have pre-tax levels of inequality that are considerably higher than the level seen in the United States.

Where the United States does stand out is in the level of inequality after taxes and transfers. Judged by this metric, the United States is the most unequal of all the twenty-two countries. As Gornick said at the conference, what this means is that, contrary to popular perception, our system of taxes and transfers does less to ameliorate inequality than the systems other countries have. Take Ireland, for example, where government interventions reduce the level of inequality from 0.63 to 0.35, a reduction of 0.28. In the United States, the comparable figures are 0.57 and 0.42, a reduction of just 0.15.

When thinking about inequality, it is important to take account of measures other than income and, in particular, to look at social mobility. The United States likes to think of itself, and portray itself, as the land of opportunity. If that’s true, and a lot of Americans who start out poor end up rich, high levels of income inequality might not matter as much.

One way economists tackle social mobility is by looking at data sets that follow a group of people over their entire lives, tracking where they start out in the overall income distribution and where they end up. In doing this, it is possible, for example, to work out the probability that a child born to a family in the lowest quintile (the bottom twenty per cent) of the income distribution eventually reaches the highest quintile (the top twenty per cent). The better the odds are, the more social mobility there is, and the more that society will resemble the equal-opportunity ideal.

The next chart, which Harvard’s Raj Chetty put up, shows the results of one such exercise, which he and three other economists (including Saez) carried out. In addition to working out the probabilities of moving up the income distribution, the authors broke down the data on a geographical basis, which enables us to see where social mobility is highest and lowest. Areas with the least social mobility are depicted in darker colors.

When Chetty and his colleagues first published this chart, earlier this summer, it got a lot of attention, and that’s not surprising. The map show the areas of low social mobility to be concentrated largely in the South and the industrial Midwest. Generally speaking, these are areas that have high numbers of African-American residents and a lot of residential segregation, which has inevitably focussed attention on the roles race and segregation play in sustaining a caste-like system, in which those who start out at the bottom tend to stay there. Chetty noted that these two factors certainly appear to play a role, but he also pointed out another couple of interesting facts.

In these low mobility areas, it isn’t just black residents who tend to get stuck. Whites, too, exhibit low levels of social mobility. In states like Georgia, Mississippi, and South Carolina, poor white children tend to grow up into poor white adults. Secondly, regardless of race, the level of income inequality itself seems to play an important role in determining levels of social mobility. In places where income is divided very unequally, and poorer groups get only a small slice of the pie, very few people manage to start at the bottom and end up at the top. With a measure of inequality on the horizontal axis and a level of social mobility on the vertical axis, the fifth chart, below, shows the evidence for metro areas across the United States.

The negative slope indicates that high levels of inequality are associated with low levels of social mobility. Obviously, correlation is not causation. But the relationship, which Princeton’s Alan Krueger, the former chairman of the Council of Economic Advisers, has dubbed the Gatsby Curve, is certainly suggestive. If nothing else, the chart implies that those hoping to rely on high levels of social mobility to offset the effects of rising income inequality are likely to be disappointed.

So what is the politics of all this? In recent years, of course, we’ve witnessed the rise of Occupy Wall Street, and we’ve seen Mitt Romney self-destruct with his remark about the “forty-seven per cent.” With rising inequality becoming a salient political issue, it would be reassuring to think we can rely on the political system to address it. But can we?

Ilyana Kuziemko, an economist at Columbia Business School who served as Deputy Assistant Secretary for Economic Policy at the U.S. Treasury in President Obama’s first term, presented some survey data that might give us pause. The sixth chart is based on a survey question that asks people whether the government should reduce income differences between the rich and the poor, and it shows how the answers have changed over the past thirty years, as inequality has risen sharply.

The surprising finding is that there’s little evidence of a surge in support for redistributionary policies. In fact, a fitted regression line shows the level of support falling slightly during the last three decades. Since 2007, it is true, there has been a rise in the number of people answering the survey question in the affirmative. But Kuziemko’s take on the data was that it’s too early to say whether this represents a permanent shift.

That’s not a very encouraging conclusion, perhaps, but it gets across something important. In discussing the causes and effects of rising inequality, we’ve made quite a bit of progress in the past decade or so. On the empirical side, particularly, we know much more than we did. But there are lots of open questions, including a fundamental one: What is the relationship, if any, between inequality and growth? In some recorded remarks shown at the conference, M.I.T.’s Robert Solow suggested that, at U.S. levels of inequality, there might well be a negative relationship, with inequality retarding growth. I’m sympathetic to that argument, which Columbia’s Joseph Stiglitz and others have also made, but it would be good to see more case studies and statistical evidence backing it up or knocking it down. Now that the Center for Equitable Growth is up and running, there’s much for it to get cracking on.

The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings.

His thoughts on income inequality are searing:

How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality.

The pope's screed on "the economy of exclusion and inequality" will disappoint those who considers themselves free-market capitalists, but they would do well to listen to the message. Francis gives form to the emotion and injustice of post-financial-crisis outrage in a way that has been rare since Occupy Wall Street disbanded. There has been a growing chorus of financial insiders – from the late Merrill Lynch executive Herb Allison to organizations like Better Markets – it's time for a change in how we approach capitalism. It's not about discarding capitalism, or hating money or profit; it's about pursuing profits ethically, and rejecting the premise that exploitation is at the center of profit. When 53% of financial executives say they can't get ahead without some cheating, even though they want to work for ethical organizations, there's a real problem.

Unlike Occupy, which turned its rage outward, Pope Francis bolstered his anger with two inward-facing emotions familiar to any Catholic-school graduate: shame and guilt, to make the economy a matter of personal responsibility.

This is important. Income inequality is not someone else's problem. Nearly all of us are likely to experience it. Inequality has been growing in the US since the 1970s. Economist Emmanuel Saez found that the incomes of the top 1% grew by 31.4% in the three years after the financial crisis, while the majority of people struggled with a disappointing economy. The other 99% of the population grew their incomes 0.4% during the same period.

As a result, federal and state spending on social welfare programs has been forced to grow to $1tn just to handle the volume of US households in trouble. Yet income inequality has been locked out of of the mainstream economic conversation, where it is seen largely as a sideshow for progressive bleeding hearts.

In the discussions of why the US is not recovering, economists often mention metrics like economic growth and housing. They rarely mention the metrics that directly tell us we are failing our economic goals, like poverty and starvation. Those metrics of income inequality tell an accurate story of the depth of our economic malaise that new-home sales can't. One-fifth of Americans, or 47 million people, are on food stamps; 50% of children born to single mothers live in poverty; and over 13 million people are out of work. Children are now not likely to do as well as their parents did as downward mobility takes hold for the first time in generations.

The bottom line, which Pope Francis correctly identifies, is that inequality is the biggest economic issue of our time – for everyone, not just the poor. Nearly any major economic metric – unemployment, growth, consumer confidence – comes down to the fact that the vast majority of Americans are struggling in some way. You don't have to begrudge the rich their fortunes or ask for redistribution. It's just hard to justify ignoring the financial problems of 47 million people who don't have enough to eat. Until they have enough money to fill their pantries, we won't have a widespread economic recovery. You can't have a recovery if one-sixth of the world's economically leading country is eating on $1.50 a day.

It's only surprising that it took so long for anyone – in this case, Pope Francis – to become the first globally prominent figure to figure this out and bring attention to income inequality.

Income inequality is the issue that will govern whether we ever emerge from the struggling economy recovery and it determine elections in 2014. The support for Elizabeth Warren to rise above her seat in the US Senate, for instance, largely centers on her crusade against inequality. The White House's chirpy protestations that the economy is improving are not fooling anyone.

Into this morass of economic confusion steps Francis with clarifying force:

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting.

It's a historic and bold statement, mainly because it's rarely heard from clergy. Money has always been at odds with religion, going back to the times when God had a fighting chance against Mammon. Moses grew enraged by the golden calf, Jesus by moneychangers in the temple, Muhammad by lending money at interest, or usury. It is easier for a camel to pass through the eye of a needle than for a rich man to go to heaven, the Bible tells us.

There have been criticisms from prominent men of religion before, but they didn't stick. in 2008, the Archbishop of Canterbury endorsed Marx against the forces of "unbridled capitalism", and the Archbishop of York disdained traders as "bank robbers and asset strippers", but those cries went unheeded in the subsequent flood of corporate profits.

At the time, those criticisms seemed extreme, throwing pitchforks into frozen ground. Francis is speaking at a when the ground has been thawed. Outrage against the financial sector is lurking so close to the surface that the US government can extract a $13bn fine from the nation's largest bank, throwing it into its first financial loss in nine years, and find significant approval.

Still, popes have been largely content to leave these particular issues of economic inequality behind in favor of focusing on social issues. There was, after all, a problem of throwing stones. The church's rich trappings and vast wealth, as well as its scandal-plagued Vatican bank, made an ill fit to preach too loudly about austerity.

Pope Francis, in his simple black shoes and unassuming car and house, is the first pontiff in a long time to reject flashy shows of power and live by the principle of simplicity. That makes him uniquely qualified to make the Vatican an outpost of Occupy Wall Street. His message about spiritual salvation applies mainly to Catholics but it would be sensible for economists and lawmakers to recognize his core message about the importance of income inequality applies to even those who have no belief in religion.

Capitalism has always seen itself as an amoral pursuit, where the guiding stars were not "good" or "bad", but only "profit" and "loss". It's going to be harder to sustain that belief over the next few years.

October 07, 2013

This is Robert Reich's latest venture in an attempt to inform the American public about what's really going on with the economy in this society. He's tried everything else: Chancellor’s Professor of Public Policy at the University of California at Berkeley in which he teaches a course on Wealth and Poverty, a blog, where he had as many as 300 comments after each post until he shut down the comments due to a persistent vile and threatening commenter who stooped to anti-semitic comments, 13 books, the latest being "Beyond Outrage," Secretary of Labor in the Clinton Administration, radio and TV appearances, lectures. He also worked in the Ford and Carter administrations. Reich has always been concerned about those who are struggling to keep their heads above water, and in today's world that includes almost all of the former members of the middle class.

The major metaphor in the film is a suspension bridge which fits perfectly over a graph of the concentration of wealth that occurred at two points in American history, the first being in 1928 and the second being in 2008. These are the two high points of the suspension bridge and correspond to the two points of peak inequality in American society after which there was a crash: the Great Depression and the Great Recession. At those two high points in the suspension bridge the upper 1% took home over 23% of the national income. The situation is so extreme that today 400 Americans have more wealth than the lower half of the American people, 150 million, combined.

The movie starts and ends in Reich's Berkeley class on Wealth and Poverty. Many scenes are shot while Reich is driving his Mini-Cooper, a car he says is "proportionate" with his diminutive height. He uses self-deprecating humor by showing "the box" which he carries to speaking engagements so he can see over the lectern. A rare genetic disease caused his lack of growth. An interesting fact that I hadn't known is that Michael Schwerner, one of three civil rights workers murdered in 1964 by the Ku Klux Klan in Mississippi, was a personal friend and "protector". Since bigger boys picked on him he became friends with Schwerner who looked out for him. Reich decided to spend his life serving the underserved after he heard of Schwerner''s murder.

The major study on inequality was done by Emmanuel Saez (also at Berkeley) and French economist Thomas Piketty. Their innovation was to measure American income inequality historically. Existing data went back only to the 1970s. Tedious archival research at the Internal Revenue Service allowed them to stretch the data all the way back to 1913. After World War II, there was a period in which the middle class did quite well. This lasted till approximately 1980. After that median wages remained flat up till the present day while the income of the upper 1% skyrocketed thus producing epic inequality.

The US has one of the most unequal distribution of incomes and wealth of any country in the world. Rated by the gini coefficient, a measure of inequality, the US has more inequality than Turkey, Iran and the Ivory Coast to name just three.

Robert Reich does not advocate any radical solutions to this problem despite the fact that Bill O'Reilly has called him a communist on Fox News, the archival footage of which is included in the film. He points out that the two high points of the suspension bridge correspond to the points at which taxes were extremely low for the upper class. Reich is basically a Keynesian who would like taxes raised on the rich with the money spent to rebuild infrastructure thus providing middle class jobs. He points out that the decline of the middle class exactly corresponds with the deunionization of the US, but labor unions will probably not be coming back any time soon due to the facts of globalization and robotization. American workers do not have any leverage for jobs that can either be shipped overseas or roboticized. Unions were able to bargain for better wages when the corporations really needed them in the period 1945-1980. They don't really need them now.

Reich doesn't talk about economic democracy or the cooperative movement in the world today. He doesn't take on Wall Street or suggest public banking as an alternative. He seems to long for the good old days when taxes on the rich were high and good union jobs were plentiful. But that doesn't address the present day situation. He seems to think like most conventional thinkers that more education is the panacea so that we can "compete in the global market." Along those lines Anthony Carnivale has done a study on the economic value of various college degrees. The study was just for four year bachelor's degrees with no advanced degrees included. He found that the highest paid degree was Petroleum Engineering with students being recruited on campus with offers over $100,000 per year to start.

That contrasts with a degree in psychology for which there was an average starting salary of around $25,000. So if you have no conscience about contributing to global warming, you can major in petroleum engineering, go to work for Exxon and make over $100K to start. There is seemingly an inverse relationship between highly paying jobs and highly ethical jobs. For instance, about half the Princeton graduating class last year went to work for Wall Street along with 25% of the classes of Harvard and Yale. So yes education pays as long as it is in what I would consider an unethical field. It's no secret that there are plenty of jobs in the oil and gas industry, on Wall Street and in the military-industrial complex. The question is do you want money or do you want to be able to sleep at night?

The trouble with the seeming obsession with education as a way to hold onto middle class status is that the whole educational system is oriented toward preparing one to go to work as an employee. Getting a job means going to work for someone else. The educational system does not prepare you to go to work for yourself. A college degree is just a ticket of admission for a billet in the corporate world. If we became educated with a view towards becoming self employed, education would take on a much different complexion. However, the best jobs are self created jobs especially now since corporate jobs are becoming few and far between and the cost of a college diploma is $20K-$50K in student loan debt. With that debt there is no guarantee that you will even get a job. The social contract that a college degree guarantees a good middle class job has totally broken down. As Thomas Friedman says, "Need a Job? Invent It."

"Inequality for All" starring Robert Reich and directed by Jacob Kornbluth can be seen at the Landmark Theatres in either La Jolla or Hillcrest.

February 25, 2013

The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems.

Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.

However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.

And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.

The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.

So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.

The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."

But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.

Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate.

Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.

Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:

"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."

The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%.

Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly. Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.

Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:

"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."

We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.

That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.

There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.

January 08, 2013

Calls for a new economic model, ethical regulations for markets

Pope Benedict XVI from the window of his studio overlooking St. Peter's Square at the Vatican, Tuesday, Jan. 1, 2013. The Pope slammed capitalism and economic inequality in his annual message of peace. (AP Photo/Andrew Medichini)Pope Benedict XVI said in his New Year’s peace message today that the world was under threat from unbridled capitalism.

The pope said "hotbeds of tension and confrontation caused by the growing inequality between rich and poor and the prevalence of a selfish and individualistic mentality also expressed by unregulated financial capitalism."

The 85-year-old Catholic Church leader spoke at a New Year's Day Mass in the Vatican, then greeted a crowd of tens of thousands outside St Peter's Basilica. The Catholic Church marks its World Day of Peace on New Year's Day with events around the world.

The pope said economic models that seek maximum profit and consumption and encourage competition at all costs had failed to look after the basic needs of manyThousands of peace marchers carrying rainbow banners released balloons in cold St Peter’s Square as the pope spoke.

A longer version of the Pope's annual message was sent to heads of state, government and non-governmental organizations on December 14th.

Reuters reports that in that message "the Pope called for a new economic model and ethical regulations for markets, saying the global financial crisis was proof that capitalism does not protect the weakest members of society."

The pope said economic models that seek maximum profit and consumption and encourage competition at all costs had failed to look after the basic needs of many and could sow social unrest.

"It is alarming to see hotbeds of tension and conflict caused by growing instances of inequality between rich and poor, by the prevalence of a selfish and individualistic mindset which also finds expression in an unregulated financial capitalism."

The pope said people, groups and institutions were needed to foster human creativity, to draw lessons from the crisis and to create a new economic model.

December 29, 2012

Well the New Year is upon us, and it's time to take stock and see if I can make any sense out of the goings on of the last year and the interaction of reality with my own mind. This is my crack at it.

1. I believe that gun ownership should be a privilege and not a right. The 2nd Amendment was constucted to be similar to the Swiss model in which citizens formed a militia for national defense. There was no standing army. That was the original intent of the framers of the Constitution for exactly the same reason: there was no standing army. Today that rationale is not relevant. Even Switzerland has moved the guns from homes to depots to prevent what little gun violence takes place there.

I don't believe background checks and a database of those with mental problems will solve much. In almost every mass murder, the perpetrators had no prior record of mental health problems although in retrospect everyone agrees that there were mental health problems. In almost every case, the guns were obtained legally. That tells you something which is that it is the proliferation of military type weapons with high capacity magazines that is the problem. These guns should not only be made illegal, but they should be taken off the streets, that is, confiscated or gotten rid of with buyback programs.

Terrorists have only been able to kill 17 people in the US since 9/11, but 88,000 Americans have died in gun violence from 2003 to 2010. Britain, which has very strict gun laws, had 41 gun murders in 2010 while the US had around 10,000. 6,626 Americans have died in the wars in Iraq and Afghanistan. About 3000 died in the tragedy of 9/11. The cost of the wars in Iraq and Afghanistan so far is around $4 trillion. At the same time zero dollars have been spent on the war on gun violence in the US in which about the same number of people die every year as died on 9/11 plus Iraq and Afghanistan (Americans, that is). Does this make any sense? As Pogo said, "We have met the enemy and the enemy is us."

2. I believe there should be a floor on poverty and a ceiling on wealth. For most of the last decade, the percentage of Americans living below the poverty line increased each year, from 12.3 percent in 2006 to 15.1 percent in 2010. In 2011 the official poverty rate was 15 percent, meaning that 46.2 million people live below the poverty line. The Walton family has more wealth than the lower 40% of the American population combined while workers at Wal-Mart subsist on wages so low that they need to supplement their incomes with food stamps and other social services driving up the cost of government.

Much of the wealth that the upper 1% possesses is used to distrort the political system and was gained fraudulently by those in the financial sector. I wrote this in 2010 on Will Blog For Food:

"Hedge Fund manager John Paulson helped to design the Abacus fund for Goldman Sachs and filled it with a bunch of garbage. This fund was then peddled to unwary investors while Paulson shorted it. As a result, when the garbage in the fund went south, the investors lost $1 billion and Paulson's gamble netted him $3.7 billion. But that isn't even the worst of it. Taxpayers who bailed out the system actually paid Paulson the $3.7 billion - as if he needed it."

John Paulson hasn't been prosecuted for this fraudulent investment scheme and paid taxes on his income at the "carried interest" rate of 15% just like his fellow private equity fund manager, Mitt Romney. He has used some of his ill gotten gains to contribute to conservative causes as has billionaire Sheldon Adelson who has made his money off of seniors gambling away their social security checks.

I don't think anyone needs an income of more than $10 million a year, and a family of four needs an income of at least $40 thousand. These would be my recommended limits, for what they're worth, for the ceiling on wealth and the floor on poverty. Remember anyone earning an income of $10 million is going to store much of that as accumulated wealth which is going to provide a certain percentage return on investment (ROI in plutocrat speak) as unearned income each following year in addition to the $10 million earned (yeah, sure) income.

3. I believe that global warming is happening right now and is a result of human beings polluting the atmosphere with carbon emissions. As the saying goes "Don't shit where you eat" and we are shitting on Mother Earth. Future generations are going to have to eat and breathe here. Europeans and native Americans settled this continent without sending massive amounts of carbon into the atmosphere. We're going to have to relearn how to do the same, and there is not much time to waste without suffering the consequences that we're already starting to suffer.

As the number of billion dollar weather events starts to pile up, we will soon run out of money. We need to divert money from the bloated and wasteful military-industrial complex and spend it on infrastructure redevelopment in order to counteract and protect ourselves from the devastating aftermaths of extreme weather events like SuperStorm Sandy and SuperTyphoon Bopha. As I previously said, we have spent trillions to avenge the deaths of approximately 3000 people while spending hardly anything on gun control or infrastructure hardening. Both of the latter are bigger threats to American security than are the handful of self-proclaimed Al-Quaeda terrorists who have done a trivial amount of damage to the US since 9/11. Yet we spend trillions of dollars on them which mainly goes into the coffers of corrupt politicians and defense contractors. Not to mention the millions of civilians we have killed in Iraq and Afghanistan which guarantees a future generation of terrorists bent on avenging those deaths.

4. I don't believe that good middle class jobs are coming back as we recover from the Great Recession. They were disappearing long before the Great Recession hit. The combination of automating and computerizing manufacturing processes combined with the outsourcing of menial labor combined with the deunionization of the country means that we shouldn't sit around and hold our collective breaths expecting that everyone who has lost a good middle class job is going to get one back as we recover from recession and the unemployment rate gets down to 5%. The jobs that are being created are for the most part minimum wage service sector jobs. Even so-called full employment, if we achieve it, will consist in large part of those kinds of jobs. So what good is full employment as a measure of anything or a goal?

The so-called job creators are really job destroyers and they know that. They are just laughing up their sleeves as they automate and outsource thereby slashing the cost of production and increasing profits while at the same time calling for lower taxes on themselves on the grounds that they are job creators. This makes Wall Street very happy and top management is handsomely rewarded for doing this. As CEO pay soars, jobs are either outsourced or subcontracted to temp agencies who hire non-full time workers at minimal wages to do the heavy lifting. By this means the major corporations take no responsibility for low wages. It's somebody else, a sub-contractor, that's paying the low wages, not them. And a college education is no panacea. Middle aged college degreed folks are being let go, laid off and downsized never to be rehired again. A good job right out of college is no guarantee of continued employment as you become technologically obsolete in about 10 years.

What's the solution? I believe that self-employment is a big part of it. When you are employed by a corporation, you are vulnerable to being laid off for any reason at any time. When you're self employed, you can never be laid off. It may be too late for a lot of people, but young people coming up in school, even those college bound, should learn a trade while in high school that they can fall back on if need be. Most trades that serve the local community cannot and will not be outsourced and are amenable to self employment. The college educated crowd needs to think about what occupations and professions allow them to be self employed and which only allow them to be employees of some corporation. And most corporations don't want you if you've been laid off after the age of 50 when you are most vulnerable and desperately need a job.

I also believe that government has to be the employer of last resort. Corporations are in the business of outsourcing and creating temp jobs. Even startups usually only need employees until they really get rolling, go public and get obsessed with their stock price which means they need to reduce the cost of labor. At that point the job creators seek to creatively destroy American jobs and pocket increased profits.

Well, folks, there you have it in a nutshell. These are some of the topics I will be writing about in 2013. I also like to bring in the San Diego connection as what's happening in the wider world is also very definitely happening here as well. As far as our political system is concerned, my prediction is that Republicans in Congress will obstruct any meaningful legislation whatsoever and put a halt to any initiative President Obama wants to make. Better hope that 2014 brings a return to majorities in both the House and Senate for Democrats and that Obama can manage to get something constructive done for the good of the country in his last two years in office.

November 22, 2012

A half century ago America’s largest private-sector employer was General Motors, whose full-time workers earned an average hourly wage of around $50, in today’s dollars, including health and pension benefits.

Today, America’s largest employer is Walmart, whose average employee earns $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits.

There are many reasons for the difference – including globalization and technological changes that have shrunk employment in American manufacturing while enlarging it in sectors involving personal services, such as retail.

But one reason, closely related to this seismic shift, is the decline of labor unions in the United States. In the 1950s, over a third of private-sector workers belonged to a union. Today fewer than 7 percent do. As a result, the typical American worker no longer has the bargaining clout to get a sizeable share of corporate profits.

At the peak of its power and influence in the 1950s, the United Auto Workers could claim a significant portion of GM’s earnings for its members.

Walmart’s employees, by contrast, have no union to represent them. So they’ve had no means of getting much of the corporation’s earnings.

Walmart earned $16 billion last year (it just reported a 9 percent increase in earnings in the third quarter of 2012, to $3.6 billion), the lion’s share of which went instead to Walmart’s shareholders — including the family of its founder, Sam Walton, who earned on their Walmart stock more than the combined earnings of the bottom 40 percent of American workers.

Is this about to change? Despite decades of failed unionization attempts, Walmart workers are planning to strike or conduct some other form of protest outside at least 1,000 locations across the United States this Friday – so-called “Black Friday,” the biggest shopping day in America when the Christmas holiday buying season begins.

At the very least, the action gives Walmart employees a chance to air their grievances in public – not only lousy wages (as low at $8 an hour) but also unsafe and unsanitary working conditions, excessive hours, and sexual harassment. The result is bad publicity for the company exactly when it wants the public to think of it as Santa Claus. And the threatened strike, the first in 50 years, is gaining steam.

The company is fighting back. It has filed a complaint with the National Labor Relations Board to preemptively ban the Black Friday strikes. The complaint alleges that the pickets are illegal “representational” picketing designed to win recognition for the United Food & Commercial Workers (UFCW) union. Walmart’s workers say they’re protesting unfair labor practices rather than acting on behalf of the UFCW. If a court sides with Walmart, it could possibly issue an injunction blocking Black Friday’s pickets.

What happens at Walmart will have consequences extending far beyond the company. Other big box retailers are watching carefully. Walmart is their major competitor. Its pay scale and working conditions set the standard.

More broadly, the widening inequality reflected in the gap between the pay of Walmart workers and the returns to Walmart investors, including the Walton fammily, haunts the American economy.

Consumer spending is 70 percent of economic activity, but consumers are also workers. And as income and wealth continue to concentrate at the top, and the median wage continues to drop – it’s now 8 percent lower than it was in 2000 – a growing portion of the American workforce lacks the purchasing power to get the economy back to speed. Without a vibrant and growing middle class, Walmart itself won’t have the customers it needs.

Most new jobs in America are in personal services like retail, with low pay and bad hours. According to the Bureau of Labor and Statistics, the average full-time retail worker earns between $18,000 and $21,000 per year.

But if retail workers got a raise, would consumers have to pay higher prices to make up for it? A new study by the think tank Demos reports that raising the salary of all full-time workers at large retailers to $25,000 per year would lift more than 700,000 people out of poverty, at a cost of only a 1 percent price increase for customers.

And, in the end, retailers would benefit. According to the study, the cost of the wage increases to major retailers would be $20.8 billion — about one percent of the sector’s $2.17 trillion in total annual sales. But the study also estimates the increased purchasing power of lower-wage workers as a result of the pay raises would generate $4 billion to $5 billion in additional retail sales.

September 03, 2012

The most troubling economic trend facing America this Labor Day weekend is the increasing concentration of income, wealth, and political power at the very top – among a handful of extraordinarily wealthy people – and the steady decline of the great American middle class.

Inequality in America is at record levels. The 400 richest Americans now have more wealth than the bottom 150 million of us put together.

Republicans claim the rich are job creators. Nothing could be further from the truth. In order to create jobs, businesses need customers. But the rich spend only a small fraction of what they earn. They park most of it wherever around the world they can get the highest return.

But as the middle class’s share of total income continues to drop, it cannot spend as much as before. Nor can most Americans borrow as they did before the crash of 2008 — borrowing that temporarily masked their declining purchasing power.

As a result, businesses are reluctant to hire. This is the main reason why the recovery has been so anemic.

As wealth and income rise to the top, moreover, so does political power. The rich are able to entrench themselves by lowering their taxes, gaining special tax breaks (such as the “carried interest” loophole allowing private equity and hedge fund managers to treat their incomes as capital gains), and ensuring a steady flow of corporate welfare to their businesses (special breaks for oil and gas, big agriculture, big insurance, Big Pharma, and, of course, Wall Street).

All of this squeezes public budgets, corrupts government, and undermines our democracy. The issue isn’t the size of our government; it’s who our government is for. It has become less responsive to the needs of most citizens and more to the demands of a comparative few.

The Republican response – as we saw dramatically articulated this past week in Tampa – is to further reduce taxes on the rich, defund programs for the poor, fight unions, allow the median wage to continue to fall, and oppose any limits on campaign contributions or spending.

It does not take a great deal of brainpower to understand this strategy will lead to an even more lopsided economy, more entrenched wealth, and more corrupt democracy.

The question of the moment is whether next week President Obama will make a bold and powerful rejoinder. If he and the Democratic Party stand for anything, it must be to reverse this disastrous trend.

WASHINGTON — High earners who are worried that this year’s Tax Day will be the last one before their rates rise have more than just the White House and Washington to blame. They can also look to two academically revered, if publicly obscure, left-leaning French economists whose work is the subtext for the battle over tax fairness.

Emmanuel Saez and Thomas Piketty have spent the last decade tracking the incomes of the poor, the middle class and the rich in countries across the world. More than anything else, their work shows that the top earners in the United States have taken a bigger and bigger share of overall income over the last three decades, with inequality nearly as acute as it was before the Great Depression.

Known in Washington and the economics profession by the of-course-you-know shorthand “Piketty-Saez,” the two have been denounced on the editorial page of The Wall Street Journal and won mention in White House budget documents.

Mr. Saez, 39, a professor at the University of California, Berkeley, has won the John Bates Clark Medal, an economic laurel considered second only to the Nobel, as well as a MacArthur Fellowship grant. Mr. Piketty, 40, of the Paris School of Economics, has won Le Monde’s prize for best young economist, among other awards.

Both admire, even adore, the United States, they say, for its entrepreneurial drive, innovative spirit and, not least, its academic excellence: the two met while researchers in Boston. But both also express bewilderment over the current conversation about whether the wealthy, who have taken most of America’s income gains over the last 30 years, should be paying higher taxes.

“The United States is getting accustomed to a completely crazy level of inequality,” Mr. Piketty said, with a degree of wonder. “People say that reducing inequality is radical. I think that tolerating the level of inequality the United States tolerates is radical.”

As much as Mr. Piketty’s and Mr. Saez’s work has informed the national debate over earnings and fairness, their proposed corrective remains far outside the bounds of polite political conversation: much, much higher top marginal tax rates on the rich, up to 50 percent, or 70 percent or even 90 percent, from the current top rate of 35 percent.

The two economists argue that even Democrats’ boldest plan to increase taxes on the wealthy — the Buffett Rule, a 30 percent minimum tax on earnings over $1 million — would do little to reverse the rich’s gains. Many of the Republican tax proposals on the table might increase income inequality, at least in the short term, according to William G. Gale of the Tax Policy Center and many other left-leaning and centrist economists.

Conservatives respond that high tax rates would stifle economic growth, at a minimum, and cause some businesses and high-income workers to flee to other countries. When top American tax rates were much higher, from the 1940s through the early 1970s, businesses could not relocate as easily as they can now, say critics of Mr. Piketty and Mr. Saez.

But Mr. Piketty and Mr. Saez argue that the historical facts are their side: Many countries have higher tax rates — and the United States has had higher tax rates — without stifling growth or encouraging the concentration of income in the hands of the very rich.

“In a way, the United States is becoming like Old Europe, which is very strange in historical perspective,” Mr. Piketty said. “The United States used to be very egalitarian, not just in spirit but in actuality. Inequality of wealth and income used to be much larger in France. And very high taxes on the very rich — that was invented in the United States,” he said.

Mr. Saez added, “Absent drastic policy changes, I doubt that income inequality will decline on its own.”

The two economists’ project of mapping income inequality started two decades ago, when Mr. Saez was teaching at Harvard and Mr. Piketty teaching down the road at the Massachusetts Institute of Technology.

Their innovation was to measure American income inequality historically. Existing data went back only to the 1970s. Tedious archival research at the Internal Revenue Service allowed them to stretch the data all the way back to 1913.

Once they had collected the data, the computation was easy. They figured out the benchmark for various income levels — the top 10 percent, top 1 percent and top 0.1 percent of earners, for instance — and calculated what share of income each group took each year.

What they found startled them. As in other industrially advanced countries, income inequality in the United States fell after World War II, a period that economic historians call the “Great Compression,” and remained stable through much of the 1970s.

But then inequality started increasing again, with the top 1 percent of earners drawing a bigger and bigger share of overall income. Their graph showing the trend became well-known: a deep U, with inequality as acute today as it was just before the depression.

When they first published their work, income inequality was mostly off the political radar screen, thanks to the 1990s boom, Mr. Saez said.

“Growing inequality was not perceived to be an issue because the economy was growing fast and even the incomes of the 99 percent were growing significantly,” he said.

But the deep downturn of the last few years, and Mr. Obama’s election, brought the issue back to the fore. Peter R. Orszag, the former Obama budget director, has said the Piketty-Saez work “helped to point the way for the administration in its pledge to rebalance the tax code.”

Now living many time zones apart, Mr. Piketty and Mr. Saez update their work with frequent e-mails, Skype conversations and data-sharing through Dropbox.

They have found that the trends have mostly continued. From 2000 to 2007, incomes for the bottom 90 percent of earners rose only about 4 percent, once adjusted for inflation. For the top 0.1 percent, incomes climbed about 94 percent.

The recession interrupted the trend, with the sharp decline in stock prices hitting the pocketbooks of the rich. But the income share of 1 percent has since rebounded. Data that the two economists released in March showed that the top 1 percent of earners got nearly every dollar of the income gains eked out in the first full year of the recovery. In 2010, the top 10 percent of earners took about half of overall income.

That has led the two economists to renew their calls for higher rates on the rich. Along with Peter Diamond, an emeritus professor at M.I.T. and a Nobel laureate, Mr. Saez has estimated the “optimal” top tax rates for the wealthy to be between 45 and 70 percent.

“The debate in Washington is between the Bush-era and Clinton-era tax rates,” said Mr. Diamond, whom Mr. Obama nominated to the Federal Reserve and Republicans blocked. “Our finding is that the debate should be between the pre-1986 Reagan tax rate, which was 50 percent, and the rates that existed from Johnson until Reagan,” which were higher.

“Thirty percent is three times smaller than the 91 percent of Roosevelt,” Mr. Piketty said, responding to the Buffett Rule proposal and referring to the presidency of Franklin D. Roosevelt, who engineered the New Deal. “And inequality is greater than in the time of Roosevelt.”

March 30, 2012

Luxury retailers are smiling. So are the owners of high-end restaurants, sellers of upscale cars, vacation planners, financial advisors, and personal coaches. For them and their customers and clients the recession is over. The recovery is now full speed.

But the rest of America isn’t enjoying an economic recovery. It’s still sick. Many Americans remain in critical condition.

The Commerce Department reported Thursday that the economy grew at a 3 percent annual rate last quarter (far better than the measly 1.8 percent third quarter growth). Personal income also jumped. Americans raked in over $13 trillion, $3.3 billion more than previously thought.

Yet it’s almost a certainly that all the gains went to the top 10 percent, and the lion’s share to the top 1 percent. Over a third of the gains went to 15,600 super-rich households in the top one-tenth of one percent.

We don’t know this for sure because all the data aren’t in for 2011. But this is what happened in 2010, the most recent year for which we have reliable data, and there’s no reason to believe the trajectory changed in 2011 or that it will change this year.

In fact, recoveries are becoming more and more lopsided.

The top 1 percent got 45 percent of Clinton-era economic growth, and 65 percent of the economic growth during the Bush era.

According to an analysis of tax returns by Emmanuel Saez and Thomas Pikkety, the top 1 percent pocketed 93 percent of the gains in 2010. 37 percent of the gains went to the top one-tenth of one percent. No one below the richest 10 percent saw any gain at all.

In fact, most of the bottom 90 percent have lost ground. Their average adjusted gross income was $29,840 in 2010. That’s down $127 from 2009, and down $4,843 from 2000 (all adjusted for inflation).

Meanwhile, employer-provided benefits continue to decline among the bottom 90 percent, according to the Commerce Department. The share of people with health insurance from their employers dropped from 59.8 percent in 2007 to 55.3 percent in 2010. And the share of private-sector workers with retirement plans dropped from 42 percent in 2007 to 39.5 percent in 2010.

If you’re among the richest 10 percent, a big chunk of your savings are in the stock market where you’ve had nice gains over the last two years. The value of financial assets held by Americans surged by $1.46 trillion in the fourth quarter of 2011.

But if you’re in the bottom 90 percent, you own few if any shares of stock. Your biggest asset is your home. Home prices are down over a third from their 2006 peak, and they’re still dropping. The median house price in February was 6.2 percent lower than a year ago.

Official Washington doesn’t want to talk about this lopsided recovery. The Obama administration is touting the recovery, period, without mentioning how narrow it is.

Republicans would rather not talk about widening inequality to begin with. The reverse-Robin Hood budget plan just announced by Paul Ryan and House Republicans (and endorsed by Mitt Romney) would make the lopsidedness far worse – dramatically cutting taxes on the rich and slashing public services everyone else depends on.

Fed Chief Ben Bernanke – who doesn’t have to face voters on Election Day – says the U.S. economy needs to grow faster if it’s to produce enough jobs to bring down unemployment. But he leaves out the critical point.

We can’t possibly grow faster if the vast majority of Americans, who are still losing ground, don’t have the money to buy more of the things American workers produce. There’s no way spending by the richest 10 percent – the only ones gaining ground – will be enough to get the economy out of first gear.

March 14, 2012

When I was a graduate student at UCSD in the midst of the anti-war movement, protesting the war in Vietnam, I went to the library and pondered what would make the world a better place, what could I do to contribute something that might make war less likely and peace time activity more likely. I concluded that more cooperation was needed. More ways to resolve conflicts big and small. For example, democratic voting systems resolve conflicts in such a way that solutions are found that are acceptable to all parties for the most part. I took it for granted that institutions that provided for more cooperation and less competition were more desirable. I thought that this was what the Enlightenment was all about. My heroes were the Enlightenment superstars: Jeremy Bentham, John Stuart Mill, Rousseau, Diderot, Voltaire, John Locke.

As I sat there and went through the stacks, I discovered another field and another set of superstars. Social choice has a long history going back to the French Enlightenment philosophers, the Marquis de Condorcet and Jean-Charles de Borda, and even further back than that. One of the 19th century superstars in this field was none other than the Rev. C. L. Dodgson otherwise known as Lewis Carroll, the author of Alice in Wonderland. These guys came up with voting systems which are essential to democracy and are essential to the whole notion of cooperation and conflict resolution. The most recent work in this field was by Kenneth Arrow who published a book Social Choice and Individual Valuesin the 1950s which attempted to generalize conflict resolution in society in both the political and economic spheres. Arrow concluded that this was impossible and came up with his famous Impossibility Theorem which was a generalization using sophisticated mathematics of the paradox of voting that was known to Condorcet hundreds of years ago. Therefore, Arrow concluded democracy was impossible and any economic system other than capitalism was impossible too. Hmmm, I thought, this is obviously a cop-out because some political and economic systems are more desirable than others and Arrow has done nothing except to throw cold water on any framework that could consider these. I took it as my self-assigned task to prove that Arrow was wrong, that social choice is possible. My work can be found on the website Social Choice and Beyond.

In “Social Choice and Individual Values,” Kenneth Arrow said , “In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions.” This paper resolves that dichotomy by developing a meta-theory from which can be derived methods for both political and economic decision making. This theory overcomes Arrow’s Impossibility Theorem in which he postulates that social choice is impossible and compensates for strategic voting, an undesirable aspect of decision making according to Gibbard and Satterthwaite. Thus the politonomics meta-theory spawns both political and economic systems which are indeed possible and which cannot be gamed. In a typical voting system the outcome of an election among several candidates results in one realized outcome – the winner of the election - which applies to all voters. In a typical economic system, a consumer may choose among a variety of possible baskets of consumer items and work programs with the result that multiple realized outcomes are possible with a unique or quasi-unique outcome for each worker/consumer. As the number of possible realized outcomes of a political-economic decision making process increases, the process becomes more economic and less political in nature and vice versa. We show that as the number of possible realized outcomes increases, voter/consumer/worker satisfaction or utility increases both individually and collectively.

I never considered, as I sat there pondering, that there would be people who would argue that what the world needed was not more cooperation but more competition, but, as I sit here today, I realize that the whole conservative right wing is in favor of just that. They want not more cooperation in either the political or economic realm but more competition believing that only winners should prevail and human progress is only possible when you give free reign to those among us who are the most talented, intelligent and ambitious. They believe that competition will result in the strongest among us winning just as Nietzsche believed that a good war hallows every cause. Their ethic is that the naturally gifted elite should prevail, and they are not concerned about what happens to the rest of us or of who is trampled in the process. This is also the philosophy of Ayn Rand as espoused in her novels Atlas Shrugged and The Fountainhead.

The debate today about increasing inequality in the world has to do with the prevalent conservative belief that only the strong should survive and be promoted and that freedom should preclude equality as a value. The rich should get more tax breaks because they are the true instigators of human progress and should be catered to at every turn. Perhaps a few crumbs will trickle down to the rest of us. This kind of thinking is counter to the Enlightenment and is fast returning us to a neo-Dark Age. No more is human progress to be measured in reduction of poverty and extension of basic services like health care to everyone. It is to be measured in terms of the great advances to human civilization like iPads, iPods and iPhones. People who are capable of coming up with these advances should be cut every break and none of the billions of dollars they make should be transferred by government to the least of these among us like the homeless, the poverty-stricken and the destitute because, well, they are the least among us, not the best among us who should be given every break.

Nevertheless, I remain in the camp of those who think that more cooperation in the political and economic spheres will do more for human progress than more competititon. I also have spent about 40 years in my spare time trying to prove that Arrow was wrong, that social choice is not impossible and that democracy in both the political and economic spheres is not only possible but desirable. This has a lot to do with voting systems, democratic institutions and constitutions but also with cooperative economic systems in which freedom is seen not as the freedom to make money at other people's expense (the losers in the competitive struggle) but the freedom to work as much or as little as one chooses and in accordance with one's preferences as much as possible. Freedom from work is for many people just as desirable a goal as the freedom to make billions of dollars, and wealthy people who don't have to work would be the first to tell you that. Economic democracy in my view is more desirable than cutthroat capitalism, and can be practiced not only at the national level, but at the enterprise level in the form of co-ops like the Mondragon Corporation.

Marx's famous definition of the "good society" was "from each according to his ability, to each according to his needs." This of course was perverted in defining communism as a society where all the wealth created by those who had a lot of talent and ability as well as a strong work ethic combined with those who had not so much in those categories would be thrown into a pot and then divided up in equal portions and handed out by the government. Such need not be the case in achieving the "good society." The "needs" part is pretty basic and could probably be accomplished with abouit 10% of the wealth that exists in the world today. Most people can provide for their own needs - no transfer necessary. There are some who cannot and to transfer a small part of the wealth of the wealthy to provide for their basic needs seems to me to be no more than humane. That still leaves the vast amount of wealth in the hands of the wealthy. In other words if you total up how much it would cost to provide for all the basic needs of everyone in the world and tote up how much wealth there exists in the world, it would take a fraction of all that wealth to provide the basic needs for everyone who cannot provide for their basic needs themselves who turn out to be mainly children, seniors and handicapped (whether physically or mentally) people.

A recent documentary by German TV station Deutsche Welle pointed out that half the world's production of food is wasted because super markets only want perfect vegetables and ones with slight blemishes are thrown out even though they are perfectly edible. Shelves need to be fully stocked with bread right up till closing hours even though any bread left over at the end of day will be thrown out as "day old." All the food that is thrown out by advanced nations is enough to feed all the world's hungry three times over although no governments or other institutions, much less the supermarkets themselves, seem to be interested in organizing that effort. This is what I mean by the fact that the basic needs of all the world's people could be satisfied without subtracting much if anything from the world's wealthy although a lot of them would admit they do not need incomes of millions of dollars a day like the Fortune 400 billionaires have.

Another documentary noted that Finnish school children have the highest test scores in the world despite the fact that they have one of the world's shortest school days with 15 minutes intermissions between classes during which time they are encouraged to go outdoors and play. All grades have large amounts of music, art and self-defined projects. They don't teach to the test. They are concerned with the development of each student as an overall human being not just as some super competitive cog in a nationally competitive machine. The Chinese on the other hand have the opposite approach demanding that children learn by rote methods and extra hours in school and at study. The Finnish schools are all public and everyone is accepted into every class. There are no advanced classes or tracking of students into lesser classes if they are not among the elite intellectually. Everyone is thrown in together; yet they have the best outcomes of any country in the world on standardized international tests. Egalitariansim seems to gain the best results.

An egalitarian ethic in which the concern is for the development of the whole human being rather than a promotion of just those who have superior abilities in accordance with a competitive ethic seems to me to be the most humanitarian way to treat both children and adults. The 1948 Universal Declaration of Human Rights already provides for most of the "from each according to their abilities, to each according to their needs" ethic. It calls for free health care which most advanced socierties, with the exception of the United States, already provide. It calls for free education and other public institutions and covers most basic human needs including food and shelter.

Article 25.

(1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

Article 26.

(1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.

(3) Parents have a prior right to choose the kind of education that shall be given to their children.

All the basic needs of everyone on the planet could be provided for without subtracting much of the wealth of the rich since most people can provide for at least their basic needs without any transfer of wealth whatsover being necessary. Interestingly, the US among other nations does provide food security for the poor through its food stamps program. And of course seniors are provided for through Medicare, Medicaid and Social Security, programs which conservative free marketers are anxious to change or eliminate.

I am with the Enlightenment thinkers especially the English utilitarians like Jeremy Bentham and John Stuart Mill who thought about the happiness of society as a whole and concluded that everyone counted, not only the ones with exceptional talent, ability and other admirable qualities. A society should be judged by how it treats "the least of these my brethren" which is the core and essence of Jesus' teachings but, sad to say, not the core and essence of Christianity as it exists in the world today. Perhaps we should start thinking about an alternative constitution for the US which has the world's oldest constitution (236 years old!) while being the world's youngest advanced nation. Other societies including most European societies while being older than the US have newer constitutions. As far-sighted as the Founding Fathers were, a new and updated constitution incorporating not only political but also economic rights along the lines of the UN Declaration of Human Rights would do much to right the wrongs and shortcomings of present day America and the world.

February 18, 2012

Suddenly, manufacturing is back – at least on the election trail. But don’t be fooled. The real issue isn’t how to get manufacturing back. It’s how to get good jobs and good wages back. They aren’t at all the same thing.

Republicans have become born-again champions of American manufacturing. This may have something to do with crucial primaries occurring next week in Michigan and the following week in Ohio, both of them former arsenals of American manufacturing.

Mitt Romney says he’ll “work to bring manufacturing back” to America by being tough on China, which he describes as “stealing jobs” by keeping value of its currency artificially low and thereby making its exports cheaper.

Rick Santorum promises to “fight for American manufacturing” by eliminating corporate income taxes on manufacturers and allowing corporations to bring their foreign profits back to American tax free as long as they use the money to build new factories.

President Obama has also been pushing a manufacturing agenda. Last month the President unveiled a six-point plan to eliminate tax incentives for companies to move offshore and create new lures for them to bring jobs home. “Our goal,” he says, is to “create opportunities for hard-working Americans to start making stuff again.”

Meanwhile, American consumers’ pent-up demand for appliances, cars, and trucks have created a small boomlet in American manufacturing – setting off a wave of hope, mixed with nostalgic patriotism, that American manufacturing could be coming back. Clint Eastwood’s Super Bowl “Halftime in America” hit the mood exactly.

But American manufacturing won’t be coming back. Although 404,000 manufacturing jobs have been added since January 2010, that still leaves us with 5.5 million fewer factory jobs today than in July 2000 – and 12 million fewer than in 1990. The long-term trend is fewer and fewer factory jobs.

Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech.

Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees.

Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages.

That’s no longer the case. Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as most of America’s service-sector workers.

GM just announced record profits but its new workers won’t be getting much of a share.

In the 1950s, more than a third of American workers were represented by a union. Now, fewer than 7 percent of private-sector workers have a union behind them. If there’s a single reason why the median wage has dropped dramatically for non-college workers over the past three and a half decades, it’s the decline of unions.

How do the candidates stand on unions? Mitt Romney has done nothing but bash them. He vows to pass so-called “right to work” legislation barring job requirements of union membership and payment of union dues. “I’ve taken on union bosses before, ” he says,” and I’m happy to take them on again.” When Romney’s not blaming China for American manufacturers’ competitive problems he blames high union wages. Romney accuses the President of “stacking” the National Labor Relations Board with “union stooges.”

Rick Santorum says he’s supportive of private-sector unions. While in the Senate he voted against a national right to work law (Romney is now attacking him on this) but Santorum isn’t interested in strengthening unions, and he doesn’t like them in the public sector.

President Obama praises “unionized plants” – such as Master Lock, the Milwaukee maker of padlocks he visited last week, which brought back one hundred jobs from China. But the President has not promised that if reelected he’d push for the Employee Free Choice Act, which would make it easier for workers to organize a union. He had supported it in the 2008 election but never moved the legislation once elected.

The President has also been noticeably silent on the labor struggles that have been roiling the Midwest – from Wisconsin’s assault on the bargaining rights of public employees, through Indiana’s recently-enacted right to work law – the first in the rust belt.

The fact is, American corporations – both manufacturing and services – are doing wonderfully well. Their third quarter profits (the latest data available) totaled $2 trillion. That’s 19 percent higher than the pre-recession peak five years ago.

But American workers aren’t sharing in this bounty. Although jobs are slowly returning, wages continue to drop, adjusted for inflation. Of every dollar of income earned in the United States in the third quarter, just 44 cents went to workers’ wages and salaries — the smallest share since the government began keeping track in 1947.

The fundamental problem isn’t the decline of American manufacturing, and reviving manufacturing won’t solve it. The problem is the declining power of American workers to share in the gains of the American economy.

January 12, 2012

The Pew Research Center has released a report that suggests about 66% of U.S. citizens believe there is a very strong conflict between the rich and the poor today -- a steep increase since 2009. Many are now suggesting that this shift is due to recent grass roots organizing such as Occupy Wall Street, which has drawn attention to economic inequality in the United States.

The Occupy Wall Street movement no longer occupies Wall Street, but the issue of class conflict has captured a growing share of the national consciousness. A new Pew Research Center survey of 2,048 adults finds that about two-thirds of the public (66%) believes there are “very strong” or “strong” conflicts between the rich and the poor—an increase of 19 percentage points since 2009.

Not only have perceptions of class conflict grown more prevalent; so, too, has the belief that these disputes are intense. According to the new survey, three-in-ten Americans (30%) say there are “very strong conflicts” between poor people and rich people. That is double the proportion that offered a similar view in July 2009 and the largest share expressing this opinion since the question was first asked in 1987.

As a result, in the public’s evaluations of divisions within American society, conflicts between rich and poor now rank ahead of three other potential sources of group tension—between immigrants and the native born; between blacks and whites; and between young and old. Back in 2009, more survey respondents said there were strong conflicts between immigrants and the native born than said the same about the rich and the poor.

“Income inequality is no longer just for economists,” said Richard Morin, a senior editor at Pew Social & Demographic Trends, which conducted the latest survey. “It has moved off the business pages into the front page.”

The survey, which polled 2,048 adults from Dec. 6 to 19, found that perception of class conflict surged the most among white people, middle-income earners and independent voters. But it also increased substantially among Republicans, to 55 percent of those polled, up from 38 percent in 2009, even as the party leadership has railed against the concept of class divisions.

The change in perception is the result of a confluence of factors, Mr. Morin said, probably including the Occupy Wall Street movement, which put the issue of undeserved wealth and fairness in American society at the top of the news throughout most of the fall. [...]

The survey attributed the change, in part, to “underlying shifts in the distribution of wealth in American society,” citing a finding by the Census Bureau that the share of wealth held by the top 10 percent of the population increased to 56 percent in 2009, from 49 percent in 2005.

However, the report also suggests that the majority of Americans believe these divides to be temporary and not necessarily inevitable.

It's clear that the economic downturn, and pushback in the form of the Occupy movement, have introduced concepts like "wealth gap" and "income inequality" into the popular lexicon. But what's interesting is that we still believe this chasm is temporary. While 46 percent of us believe that most rich people “are wealthy mainly because they know the right people or were born into wealthy families,” nearly as many think they've earned it. Forty-three percent say wealthy people became rich “mainly because of their own hard work, ambition or education,” results that have stayed virtually the same since 2008. The implication here is that, yeah, there's a clash between rich and poor, but there's still a chance to pull ourselves up by our bootstraps, too.

Maybe it's an indication of Americans' undying optimism; maybe it's our utter denial of a solidifying caste system. But these results certainly reveal our ambivalence about how wealth should be distributed in our country—or at least our hesitance to place any blame.

The Pew survey further found that 46 percent of Americans believe the rich got their wealth from knowing the right people or being born into the right families, while 43 percent said wealth came from hard work, ambition or education.

Pew, an independent research organization, said its report was based on findings from a telephone survey of 2,048 adults conducted from December 6 to December 19 and which had a margin of error of plus or minus 2.9 percentage points.

Income inequality promises to be an issue in this November's U.S. presidential campaign. The Occupy Wall Street movement also has seized upon the issue.

The most recent U.S. Census Bureau data shows the proportion of overall wealth held by the top 10 percent of the population rose to 56 percent in 2009 from 49 percent in 2005, the report noted.